Form SB-2 Ethos Environmental, Inc. 061307
UNITED
STATES
SECURITY
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
SB-2
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
ETHOS
ENVIRONMENTAL, INC.
(Name
of
small business issuer in its charter)
Nevada
(State
or Jurisdiction of Incorporation or Organization)
|
2869
(Primary
Standard Industrial Classification Code Number)
|
88-0467241
(IRS
Employer Identification Number)
|
6800
Gateway Park Drive
San
Diego, CA 92154
619-575-6800
(Address
and Telephone Number of Principal Executive Offices)
Paracorp
Incorporated
318
N Carson Street
Suite
208
Carson
City, NV 89706
(775)
883-0104
(Name,
Address and Telephone Number of Agent for Service)
Copy
of
all Communications to:
Luis
Carrillo, Esq.
SteadyLaw
Group, LLP
501
W. Broadway Suite 800
San
Diego, CA 92104
Tel.
(619) 399-3102
Fax
(619) 330-1888
APPROXIMATE
DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable, after this
registration statement becomes effective.
If
any of
the securities being registered on this form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans check the following box. x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
number of the earlier effective registration statement for the same offering.
o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the Prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
CALCULATION
OF REGISTRATION FEE
|
Title
Of Each
Class
of Securities
To
Be Registered
|
Dollar
Amount
to
be
Registered
|
Number
of Shares
to
be registered (2)
|
Proposed
Maximum
Aggregate
Offering
Price (2)
|
Amount
Of
Registration
Fee
*
|
|
|
|
|
|
Common
Stock
|
|
|
$2.86
|
|
|
|
|
|
|
(1) This
registration statement registers the sale of 8,724,788 shares of the common
stock of the registrant (all of which are shares being registered for resale
by
stockholders of the registrant). In addition to the number of shares set forth
above, the amount to be registered includes any shares of common stock issued
as
a result of stock splits, stock dividends and similar transactions in accordance
with Rule 416.
(2) The
Proposed Maximum Offering Price Per Share and the Proposed Maximum Aggregate
Offering Price in the table above are estimated solely for the purpose of
calculating the registration fee pursuant to Rule 457(c) promulgated under
the Securities Act of 1933, as amended, based on the average of the bid and
ask
price per share of the common stock as of June 11, 2007, as reported on the
NASDAQ over-the-counter bulletin
board (OTC.BB).
*
Previously paid.
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
The
information in this prospectus is not complete and may be changed. Our
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This prospectus is not an offer to sell these securities, and it is not
soliciting offers to buy these securities in any state where the offer or
sale
is not permitted.
SUBJECT
TO COMPLETION DATED JUNE 11, 2007
Ethos
Environmental,
Inc.
8,724,788
Shares
Common
Stock
_______________________
To
be Offered by Holders of Common Stock
_______________________
This
prospectus relates to the resale of 8,724,788
shares
of
our common stock by the selling stockholders listed in this prospectus.
The
selling stockholders have advised us that they will sell the shares of common
stock and warrants from time to time in the open market, on the OTC Bulletin
Board, in privately negotiated transactions or a combination of these methods,
at market prices prevailing at the time of sale, at prices related to the
prevailing market prices, at negotiated prices, or otherwise as described
under
the section of this prospectus titled “Plan of Distribution.”
We
will
not receive any proceeds from the sale of the shares by the selling
stockholders. We will bear all expenses of registration incurred in
connection with this offering, but all selling and other expenses incurred
by
the selling stockholders will be borne by them.
Our
common stock is quoted on the OTC Bulletin Board under the symbol ETEV.OB.
The high and low bid price for shares of our common stock on June 11,
2007, were $2.86 and $3.00 per share, respectively, based upon bids that
represent prices quoted by broker-dealers on the OTC Bulletin Board. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down
or
commissions, and may not represent actual transactions.
The
selling stockholders and any broker-dealer executing sell orders on behalf
of
the selling stockholders may be deemed to be “underwriters” within the meaning
of the Securities Act of 1933. Commissions received by any broker-dealer
may be deemed to be underwriting commissions under the Securities Act of
1933.
___________________________________
An
investment in these securities involves a high degree of
risk.
Please
carefully review the section titled “Risk Factors” beginning on
page10.
___________________________________
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_______________________________
The
date of this prospectus is _____________________, 2007
We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell, or
a solicitation of an offer to buy, shares of common stock in any jurisdiction
where offers and sales would be unlawful. The information contained in
this prospectus is complete and accurate only as of the date on the front cover
of this prospectus, regardless of the time of delivery of this prospectus or
of
any sale of the shares of common stock. When considering the acquisition
of the common stock described in this prospectus, you should rely only on the
information contained in this prospectus.
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This
summary highlights information contained elsewhere in this Prospectus and may
not contain all of the information that you should consider before investing
in
the shares. You are urged to read this Prospectus in its entirety, including
the
information under “Risk Factors” and our financial statements and related notes
included elsewhere in this Prospectus.
Ethos
Environmental, Inc. (“Ethos”
or
the
“Company”)
has
developed a proprietary additive product designed to enable fuels to burn
cleaner. Ethos Environmental manufactures and distributes an array of fuel
reformulating products under the name Ethos
FR®,
Ethos
Fuel Reformulators. Ethos
FR® is
a
unique line of fuel reformulators based on a blend of high quality, non-toxic,
non-petroleum based esters. When added to any fuel, these specially designed
esters add cleaning and lubricating properties. They make engines run more
efficiently-smoother, cooler and cleaner. Ethos
FR®
improves
the formula of commonly used fuels such as gasoline, diesel, methanol, ethanol,
CNG or bio-diesel. Only the elements of carbon, hydrogen and oxygen are used
in
Ethos
FR®
products
and are 99.9% clean upon ignition, ashless upon combustion and free of
carcinogenic compounds.
Ethos
seeks both a cleaner environment and economic success. As the name Ethos
suggests, we are committed to the highest ethical standards - in the product
that we sell, in the relationship with our clients, and in the conduct of our
business. The Company’s approach is to sell Ethos
FR®“one
gallon at a time”, earning the trust and loyalty of each customer by providing
products that perform as promised and make a positive difference in the
world.
Background
Ethos
Environmental, Inc. was originally incorporated under the laws of the State
of
Idaho on January 19, 1926 under the name of Omo Mining and Leasing Corporation.
The Company was renamed Omo Mines Corporation on January 19, 1929. The name
was
changed again on November 14, 1936 to Kaslo Mines Corporation and finally Victor
Industries, Inc. on December 24, 1977.
As
Victor
Industries, Inc., the Company developed, manufactured, and marketed products
related to the use of the mineral known as zeolite. Zeolites have the unique
distinction of being nature's only negatively charged mineral. Zeolites are
useful for metal and toxic chemical absorbents, water softeners, gas absorbents,
radiation absorbents and soil and fertilizer amendments.
On
November 2, 2006, the Company completed a reverse acquisition transaction of
Ethos Environmental, Inc., as described herein.
Our
Reverse Acquisition of Ethos
On
November 2, 2006, as part of a two-step reverse merger, the Company merged
with
and into Victor Nevada, Inc. a newly incorporated entity for the purpose of
redomiciling under the laws of the State of Nevada. Concurrently therewith,
we
completed the merger transaction with Ethos Environmental, Inc., a privately
held Nevada corporation (“Ethos”). The Company was the surviving entity. To more
adequately reflect the new direction of the Company the Company changed its
name
to Ethos Environmental, Inc. and adopted the business plan of Ethos.
Acquisition
On
April
20, 2006, Victor Industries, Inc., with the approval of its Board of Directors,
executed an Agreement and Plan of Merger with San Diego, CA based Ethos
Environmental, Inc., a Nevada corporation.
At
a
meeting of shareholders of the Company held on October 30, 2006, a majority
of
shareholders voted in favor of the merger. On November 2, 2006, the merger
was
consummated. As part of the merger, the Company redomiciled to Nevada, and
changed its name to Ethos Environmental, Inc. In addition thereto, and as part
of the merger, the Company set a record date of November 16, 2006 for a reverse
stock split of 1 for 1,200.
The
merger provides for a business combination transaction by means of a merger
of
Ethos with and into the Company, with the Company as the corporation surviving
the merger. Under the terms of the merger, the Company acquired all issued
and
outstanding shares of Ethos in exchange for 17,718,187 shares of common stock
of
the Company. Shares of Company common stock, representing an estimated 97%
of
the total issued and outstanding shares of Company common stock, was issued
to
the Ethos stockholders. Ethos shareholders were able to exchange their shares
beginning on or after November 16, 2006, the record date set for the reverse
stock split.
The
transaction between the Registrant and Ethos Environmental, Inc. is accounted
for as a purchase transaction; that is, the transaction is equivalent to the
issuance of shares by the Registrant for the net assets of Ethos
Environmental, Inc. The shares issued by the Registrant were valued at $0.25
per
share, a value determined by management’s estimate of the dilution effect
expected to occur from the issuance of such a large block of shares, i.e.
17,718,187 shares of common stock. The net value recorded equals management’s
estimate of the value of the acquired assets.
The
merger is accounted for under the purchase method of accounting as a reverse
acquisition in accordance with U.S. generally accepted accounting principles
for
accounting and financial reporting purposes. Under this method of accounting,
Ethos is treated as the “accounting acquirer” for financial reporting purposes.
In accordance with guidance applicable to these circumstances, the merger was
considered to be a capital transaction in substance. Accordingly, for accounting
purposes, the merger was treated as the equivalent of Ethos issuing stock for
the net monetary assets of the Company. The net monetary assets of the Company
have been stated at their fair value.
Product
Ethos
manufactures a unique line of fuel reformulators that contain a blend of low
and
high molecular weight esters. Ethos
FR®
products
add cleaning and lubricating qualities to any type of fuel or motor oil,
allowing engines to perform cooler, smoother and with more vigor. The overall
benefits are increased fuel mileage, reduced emissions, and reduced maintenance
costs.
Ethos
fuel reformulating products increase fuel mileage and reduce emissions by
burning fuel more completely. Exhaust is essentially unburned fuel - wasted
fuel
- so when that fuel is used more completely, the engine delivers better mileage
from every tank. Efficient fuel use also improves engine performance, because
a
more complete combustion process obtains increased power from every engine
revolution.
Ethos
FR®
products
reduce fuel emissions, benefiting the environment in two notable ways:
|
1.
|
The
use of Ethos
FR®
products reduce engine exhaust emissions by 30% or more, including
measurable reductions in the emission of hydrocarbons (HC), nitrogen
oxides (Nox), and carbon monoxide (CO). All of these emissions are
highly
toxic and detrimental to the
environment.
|
|
2.
|
Ethos
FR®
products reduce emissions of particulate matter, especially in
diesel-powered engines. Diesel fuel is commonly dirty and maintaining
a
diesel engine in the prime condition necessary to reduce emissions
is both
expensive and time-consuming. As a result, diesel engines are a constant
source of air contaminants. In most industrialized countries, including
the U.S., diesel engines are one of the largest sources of air pollution.
When Ethos
FR®
products are added to diesel fuel, the engine runs cleaner, smoother
and
cooler - significantly reducing sooty exhaust. Engines treated with
Ethos
FR®
run with less friction, heat and noise. Fuel and lubricating systems,
filters, tanks, and injectors last longer, reducing maintenance
costs.
|
Ethos
FR®
products
provide risk-free benefits with an economic gain to the client. Customers
testify that they experience a monetary gain on fuel savings, and they say
they
experience an average improvement in mileage per gallon between 7% and 19%
depending on the fuel (gasoline or diesel), the vehicle used, and the individual
driver’s practices and driving traits.
Our
financial condition, business, operation and prospects involve a high degree
of
risk. You should carefully read and consider the risks and uncertainties
described below as well as the other information in this report before deciding
to invest in our Company. If any of the following risks are realized, our
business, operating results and financial condition could be harmed and the
value of our stock could go down. This means that our stockholders could lose
all or a part of their investment. For a more detailed discussion of some of
the
risks associated with our Company, you are urged to carefully review and
consider the section entitled “Risk Factors” beginning on page 10 of this
prospectus.
General
The
Company’s principal executive offices are located at 6800 Gateway Park Drive,
San Diego, CA 92154, and the Company’s telephone number at that address is (619)
575-6800. The Company has a corporate internet website at http://www.ethosfr.com.The
reference to this website address does not constitute incorporation by reference
of the information contained therein.
About
This Offering
This
prospectus relates to the resale of 8,724,788 shares of Common Stock by certain
selling stockholders identified in this prospectus. All of the 8,724,788 shares,
when sold, will be sold by these selling stockholders. The selling stockholders
may sell their Common Stock from time to time at prevailing market prices.
We
will not receive any proceeds from the sale of the shares of Common Stock by
the
selling stockholders.
Common
Stock Offered
|
8,724,788
shares
|
|
|
Common
Stock Offered by the Selling Stockholders
|
8,724,788
shares
|
|
|
Common
Stock Outstanding at June 11, 2007
|
23,809,187
shares
|
|
|
Use
of Proceeds of the Offering
|
We
will not receive any of the proceeds from the sale of the shares
by the
Offering.
|
|
|
OTCBB
Ticker Symbol
|
ETEV.OB
|
Selected
Financial Information
The
selected financial information presented below is derived from and should be
read in conjunction with our financial statements, including notes thereto,
appearing elsewhere in this prospectus. See “Financial Statements.”
Summary
Operating Information
For
the
Quarters Ended March 31, 2007 and 2006 and
The
Years
Ended December 31, 2006 and 2005
|
|
Quarter
ended
March
31
2007
|
|
Quarter
ended
March
31
2006
|
|
Year
Ended
December
31, 2006
|
|
Year
Ended
December
31, 2005
|
|
Total
revenues
|
|
$
|
2,697,133
|
|
$
|
1,318,925
|
|
$
|
4,768,013
|
|
$
|
1,780,825
|
|
Total
costs and expenses
|
|
$
|
635,506
|
|
$
|
389,829
|
|
$
|
10,036,319
|
|
$
|
2,305,113
|
|
Operating
(loss) income
|
|
$
|
1,196,320
|
|
$
|
698,033
|
|
$
|
(6,608,441)
|
|
$
|
(1,050,747)
|
|
Interest
Expenses
|
|
$
|
(177,660)
|
|
$
|
0
|
|
$
|
(620,244)
|
|
$
|
(890)
|
|
Net
(loss) income
|
|
$
|
1,018,660
|
|
$
|
698,033
|
|
$
|
(6,556,803)
|
|
$
|
(1,051,637)
|
|
Summary
Balance Sheets
March
31,
2007 and December 31, 2006
|
|
March
31, 2007
|
|
December
31, 2006
|
|
Total
current assets
|
|
$
|
3,521,263
|
|
$
|
1,123,006
|
|
Current
liabilities
|
|
$
|
6,685,898
|
|
$
|
5,823,205
|
|
Stockholders’
Equity (Deficit)
|
|
$
|
7,098,908
|
|
$
|
6,030,248
|
|
RISK
FACTORS
You
should carefully consider the risks described below before investing in the
Company. We consider these risks to be significant to your decision whether
to
invest in our Common Stock at this time. If any of the following risks actually
occur, our business, results of operations and financial condition could be
seriously harmed, the trading price of our Common Stock could decline and you
may lose all or part of your investment.
Risks
Related to Our Business
Our
technology has received only limited market
acceptance.
Our
technology is a relatively new product to the market place. Although ever
growing concerns and regulation regarding the environment and pollution has
increased interest in environmentally friendly products generally, the engine
treatment and fuel reformulator, i.e. additive, market remains an evolving
market. The Ethos FR®
technology competes with more established companies such as Lubrizol
Corporation, Chevron Oronite Company (a subsidiary of Chevron Corporation),
Octel Corp., Clean Diesel Technologies, Inc. and Ethyl Corporation, as well
as
other companies whose products or services alter, modify or adapt diesel engines
to increase their fuel efficiency and reduce pollutants. Acceptance of Ethos
FR®
as an
alternative to such traditional products and/or services depends upon a number
of factors including:
· |
favorable
pricing vis a vis projected savings from increased fuel
efficiency
|
· |
the
ability to establish the reliability of Ethos FR®
products relative to available fleet
data
|
· |
public
perception of the product
|
For
these
reasons, we are uncertain whether our technology will gain acceptance in any
commercial markets or that demand will be sufficient to create a market large
enough to produce any meaningful revenue or earnings. Our future success depends
upon customers' demand for our products in sufficient amounts.
We
have a limited operating history with significant losses and expect losses
to
continue for the foreseeable future.
We
have
yet to establish any history of profitable operations. We have incurred net
losses allocable to shareholders of $6,556,803 and $1,051,637, respectively
for
the fiscal years ended December 31, 2006 and 2005. As a result, at
December 31, 2006 we had an accumulated deficit of $9,933,267. We expect,
however, that our revenues will be sufficient to sustain our operations for
the
foreseeable future. Our profitability though will require the successful
commercialization of our fuel reformulator. No assurances can be given when
this
will occur or that we will ever be profitable.
Our
independent auditors have added an explanatory paragraph to their audit report
issued in connection with the financial statements for the year ended
December 31, 2006 relative to our ability to continue as a going concern.
Our financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
We
rely on commercial arrangements with third parties, and any failure to retain
relationships with these third parties could negatively impact our ability
to
develop and market our products.
We
anticipate that our success in creating markets for our products will depend
largely on our ability to identify and establish strategic alliances with
companies and individuals that have experience in manufacturing and distributing
products to the markets we have identified. We have supplied our fuel
reformulator for evaluation purposes to a number of strategic partners and
customers. As such, our plans are dependent on and have been developed on the
assumption that our product(s) will be promoted by our strategic partners and
adopted by potential customers. However, there can be no assurance that the
commercial arrangements with current or future strategic partners and customers
will proceed beyond the initial phases of such arrangements, even if such phases
are successfully completed, or that following the initial phases the strategic
partners and customers identified will choose to purchase and distribute our
products.
The
Company’s core product may not be acceptable to commercial
customers.
Our
core
product is a fuel reformulator. However, as with any new technology,
there are risks associated with the commercial production and use of this
product and we have experienced technical difficulties when deploying in
commercial applications which have required us to take additional precautions
when transporting, storing and handling our product(s). These characteristics
may make the finished product(s) unattractive to certain distributors, customers
and end-users. In addition, the finished fuel may only be stored and dispensed
from tanks that meet stringent standards for cleanliness and not all tanks
may
be capable of achieving these standards.
Our
future revenues are unpredictable and our operating results may
fluctuate.
We
expect
to experience significant fluctuations in our future operating results due
to a
variety of factors, many of which are outside our control, including
(i) demand for our products, (ii) introduction or enhancement of
products by competitors, (iii) market acceptance of our products,
(iv) price reductions by competitors or changes in how new products are
priced, (v) availability of raw materials of adequate quality and at prices
which are economical, (vi) availability of distribution channels through
which our products are to be sold, (vii) potential costs of litigation and
intellectual property protection, (viii) our ability to attract, train and
retain qualified personnel, (ix) the amount and timing of unforeseeable
operating costs and capital expenditures related to the expansion of our
business, operations and infrastructure, (x) any technical difficulties
with respect to the use of our products, and (xi) effects of current and
future governmental regulations on the sale of our products, which may be
significant.
As
a
result of the lack of a sales history of our products, we do not have relevant
historical financial data for any periods on which to forecast revenues or
expected operating expenses in connection with growing revenues in the future.
Our expense levels are based in part on certain expectations with regard to
future revenues. We may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. As a result, any significant
shortfall in anticipated demand for our products relative to our expectations
would have an immediate adverse effect on the Company’s business, financial
conditions and results of operations.
Our
ability to operate at a profit is dependent on the price and availability of
raw
materials.
Our
results of operations and financial condition have been and will continue to
be
significantly affected by the cost and supply of raw materials used to produce
our product(s). Cost and supply are subject to and determined by market forces
over which we have no control. The price of raw materials can be volatile as
a
result of a number of factors, such as the overall supply and demand, the level
of government support, and the availability and price of competing products.
Generally,
higher prices, in relation to diesel and biodiesel fuels and related products,
will produce lower profit margins. This is especially true if market conditions
do not allow us to pass through these increased costs to our customers. There
is
no assurance that we will be able to pass through these higher raw material
costs. If higher raw material prices were to be sustained for an extended period
of time, such pricing may have a material adverse effect on our ability to
grow
profitable sales and operations, with a corresponding adverse impact on our
cash
flows and financial performance.
We
intend
to contract with third parties to help control the costs of raw materials
purchased and reduce short-term exposure to price fluctuations. Currently,
we do
not have definitive agreements with third parties for all of our needed supply.
There is no assurance that agreements to supply the remainder of our raw
material needs will be available or be on acceptable terms. In addition to
being
able to obtain the necessary quantity of raw materials, it is important to
carefully select raw material suppliers because there is a wide range of various
quality of such materials in the marketplace. It is critical that the raw
materials we purchase be of a consistently high quality and that they meet
certain other specifications. There is no assurance that we will be able to
obtain quality raw materials supplied to our distributors.
Our
business could suffer if we are unable to effectively compete with our
competitors’ technologies.
We
have
identified as competitors a number of technologies and companies who are
predominantly focusing on the fuel emission reduction market. In addition,
other
companies, many of which are likely to have substantially greater financial,
research and development, sales and marketing and personnel resources, may
currently be developing, or may develop in the future, technologies and products
that are equally or more effective and/or economical as any product we may
develop, or which would otherwise render our technologies obsolete.
If
we were to lose the services of our founders or our senior management team,
we
may not be able to execute our business strategy.
Our
future success depends in large part upon the continued service of key members
of our senior management team. In particular, Enrique de Vilmorin is critical
to
our overall management, as well as to the development of our technology, our
culture and our strategic direction. Thomas Maher, our Chief Financial Officer
is the only full-time trained financial professional in our organization; he
performs most of the duties that in many other cases would be performed by
several people within a larger and deeper organization. We do not maintain
any
key-person life insurance policies. The loss of any of our management or key
personnel could seriously harm our business.
Our
failure to protect our intellectual property could cause an erosion of our
current competitive strengths.
We
regard
the protection of our patents, trademarks, copyrights, trade secrets and other
intellectual property as critical to our success. We rely on a combination
of patent, copyright, trademark, service mark and trade secret laws and
contractual restrictions to protect our proprietary rights. We have
entered into confidentiality and non-disclosure agreements with our employees
and contractors, and non-disclosure agreements with parties with whom we conduct
business, in order to limit access to and disclosure of our proprietary
information. These contractual arrangements and the other steps taken by
us to protect our intellectual property may not prevent misappropriation of
our
technology or deter independent third-party development of similar technologies.
We also seek to protect our proprietary position by filing U.S. and
foreign patent applications related to our proprietary technology, inventions
and improvements that are important to the development of our business.
Proprietary rights relating to our technologies will be protected from
unauthorized use by third parties only to the extent they are covered by valid
and enforceable patents or are effectively maintained as trade secrets. We
pursue the registration of our trademarks and service marks in the United States
and internationally. Effective patent, trademark, service mark, copyright
and trade secret protection may not be available in every country in which
our
services are made available online.
The
steps we have taken to protect our proprietary rights may be inadequate and
third parties may infringe or misappropriate our trade secrets, trademarks
and
similar proprietary rights.
Any
significant failure on our part to protect our intellectual property could
make
it easier for our competitors to offer similar services and thereby adversely
affect our market opportunities. In addition, litigation may be necessary
in the future to enforce our intellectual property rights, to protect our trade
secrets or to determine the validity and scope of the proprietary rights of
others. Litigation could result in substantial costs and diversion of
management and technical resources and may not be successful.
We
may not be able to manufacture and to market our products in commercial
quantities.
Our
products must be manufactured in commercial quantities, in compliance with
regulatory requirements and at an acceptable cost. There can be no assurance
that our existing facilities and/or raw material supplies will be adequate
to
meet our long term objectives. If our existing facilities and/or raw material
supplies cannot meet our needs, we will seek other manufacturers. The
availability, pricing and supply of our products are currently dependent on
arrangements with our raw material suppliers, but the cost and availability
of
raw materials and esters, the availability of tax and other incentives for
our
products and arrangements for the distribution of our products by others, are
all wholly or partly outside our control. We believe there is sufficient
manufacturing capacity to meet our long term objectives, however, this could
change.
Our
business may be harmed if we fail to obtain regulatory approvals or comply
with
legislative and regulatory requirements.
The
manufacturing, marketing, supply, distribution and use of fuel and fuel
reformulators are subject to extensive legislation and regulation in most
jurisdictions in which we intend to do business. Our reformulator and the
resultant ester blend will be competing with both ordinary diesel fuel and
other
fuels and solutions that claim to offer environmental benefits. The business
of
Ethos depends, in part, on the availability of environmental legislation which
requires or provides incentives to customers to use products similar to our
own.
New or revised legislation and regulations as a result of changes in the
prevailing political climate or for any other reasons, which for example remove
the availability of incentives or which impose additional compliance burdens
on
us, or which provide incentives to distributors and customers to adopt
competitive products, could have an adverse effect on our business, prospects,
results of operations and financial position.
The
development and manufacture of our technology may subject us to environmental
compliance or remediation obligations.
Our
technology is and will be subject to many environmental laws and regulations
wherever it is used. Such laws and regulations govern, among other things,
fuel
emissions, the use and handling of hazardous substances, waste disposal and
the
investigation and remediation of
soil
and groundwater contamination. As with other companies engaged in similar
activities, a risk of environmental liability is inherent in our current and
historical activities. Future additional environmental compliance or remediation
obligations could adversely affect our business through increased production
costs from implementing environmental compliance. By restricting or prohibiting
the manufacture, distribution and use of our products, environmental regulations
could harm our business.
Our
business is subject to extensive and potentially costly environmental
regulations that could significantly increase our operating costs and our
ability to successfully operate.
We
are
subject to a number of environmental regulatory bodies such as the EPA, as
well
as other regulatory agencies.
In
accordance with the regulations promulgated under the US Clean Air Act,
manufacturers (including importers) of gasoline, diesel fuel and additives
for
gasoline or diesel fuel, are required to have their products registered with
the
EPA prior to their introduction into the market place. Currently, Ethos
FR®
has such
a registration (1910-0001). However, unforeseen future changes to the
registration requirements may be made, and Ethos FR®
may not
be able to qualify for registration under such new requirements. The loss of
our
EPA registration or restrictions on its current registration could have an
adverse affect on our business and plan of operation.
We
have
registered this product with the US Environmental Protection Agency. This
registration permits us to sell Ethos FR®
for
domestic on-road use. However, there are provisions in the Environmental
Protection Act that could require further testing. In addition, we currently
sell our product outside of the United States and intend to further expand
our
sales efforts internationally. Accordingly, Ethos FR®
is
registered in the United States only, and we are considering its registration
in
other countries. Further testing could be needed in these or other countries.
We
cannot assure you that Ethos FR®
will
pass any future testing that may be required. The failure of Ethos
FR®
to
maintain or obtain registration in countries or areas where we would like to
market it would have a materially adverse effect on our business and plan of
operation.
Our
business is favorably affected by stricter air quality regulations and
regulations regarding emission controls. If these regulations are withdrawn
or
determined to be invalid, our prospects would be adversely
affected.
Additionally,
environmental laws and regulations, both at the federal and state level, are
subject to change and changes can be made retroactively. Consequently, even
if
we obtain approval, we may be required to invest or spend considerable resources
to comply with future environmental regulations. If any of these events were
to
occur, they may have a material adverse impact on our operations, cash flows
and
financial performance.
Developing
new products, creating effective commercialization strategies for our technology
and enhancing our products and strategies are subject to inherent risks. These
risks include unanticipated delays, unrecoverable expenses, technical problems
or difficulties, as well as the possibility that funds will be insufficient.
Any
one of these could make us abandon or substantially change our technology
commercialization strategy.
Our
success will depend upon, among other things, our products meeting targeted
cost
and performance objectives for large-scale production, our ability to adapt
technologies to satisfy industry standards, satisfying consumer expectations
and
needs and bringing our products to market before the market is saturated. We
may
encounter unanticipated technical or other problems that result in increased
costs or substantial delays in introducing and marketing new products.
Current and future products may not be reliable or durable under actual
operating conditions or otherwise commercially viable. New products may not
satisfy price or other performance objectives when introduced in the
marketplace. Any of these events could adversely affect our realization of
revenues from such new products.
Product
liability claims related to our products could prove to be costly to defend
and
could harm our business reputation.
Fuel
and
fuel-additive businesses may be adversely affected by litigation and complaints
from distributors, customers and government authorities resulting from fuel
quality, illness, injury or other health concerns or other issues. Adverse
publicity surrounding such allegations could negatively affect Ethos FR,
regardless of whether the allegations are true, by discouraging distributors
and
customers from buying our products. We could also incur significant costs and
the diversion of management time in defending the Company against claims,
whether or not such claims have any basis.
We
face uncertainties managing our anticipated growth.
We
cannot
be certain that we will be able to successfully manage our anticipated growth.
In order to successfully manage growth, we must improve our management,
financial and informational systems and controls, and expand, train and manage
our employee base effectively. There will be additional demands placed on our
technical, sales, marketing and administrative resources as we expand in our
target markets. Our ability to cope with these demands may be impaired because
we are still a developmental stage company.
Our
business may suffer if we are unable to attract and retain key officers or
employees.
We
believe our future success will depend greatly upon the expertise and continued
service of certain key executives and technical personnel. Furthermore, our
ability to expand operations to accommodate our anticipated growth will also
depend on our ability to attract and retain qualified management, finance,
marketing, sales and technical personnel. However, competition for these types
of employees is intense due to the limited number of qualified professionals.
We
have attempted to reduce these personnel risks by (i) entering into
contracts with certain key employees, (ii) providing employment benefits such
as
vacations and health coverage, and (iii) adopting an employee stock option
plan that covers most employees. However, these measures do not guarantee that
employees will remain with the Company, or ensure that qualified employees
can
be recruited in the future.
Our
ability to continue as a going concern is uncertain.
The
report of our independent registered public accounting firm on our consolidated
financial statements for the fiscal year ended December 31, 2006 states
that there is substantial doubt about the Company’s ability to continue as a
going concern. This “going concern” opinion could adversely affect our ability
to sell our products, attract and retain strategic relationships and obtain
additional financing.
Our
ability to use our net operating loss carry forward may be
limited.
As
of
December 31, 2006, we have approximately $9,933,267 million in federal and
state
net operating loss carry forwards which will begin to expire in 2022 if not
used
to offset future federal and state taxable income. Our net loss carry forwards
are subject to various limitations and have not been audited by the Internal
Revenue Service. We anticipate the net loss carry forwards will be used to
offset the federal and state taxable income and the related tax payments which
we would otherwise be required to make with respect to income, if any, generated
in future years.
The
issuance of common stock in connection with the Ethos-Victor Industries
transaction may result or be deemed to result in a change in control that could
result in the limitation of Section 382 of the Internal Revenue Code of 1986,
as
amended, on the use of our net operating carry forward. This limitation would
allow us to use only a portion of the net operating loss carry forwards
generated prior to the deemed Section 382 change of control to offset future
taxable income, if any, for U.S. federal and state income tax
purposes.
The
growth of our business will be dependent upon the availability of adequate
capital.
The
growth of our business will depend on the availability of adequate capital,
which in turn will depend in large part on cash flow generated by our business
and the availability of equity and debt financing. We cannot assure you that
our
operations will generate positive cash flow or that we will be able to obtain
equity or debt financing on acceptable terms or at all.
We
face intense competition and may not have the financial and human resources
necessary to keep up with rapid technological changes which may result in our
technology becoming obsolete.
The
fuel
additive business and related anti-pollutant businesses are subject to rapid
technological change, especially due to environmental protection regulations,
and subject to intense competition. We compete with both established companies
and a significant number of startup enterprises. We face competition from
producers and/or distributors of other diesel fuel additives (such as Lubrizol
Corporation, Chevron Oronite Company, Octel Corp., Clean Diesel Technologies,
Inc. and Ethyl Corporation), from producers of alternative mechanical
technologies (such as Algae-X International, Dieselcraft, Emission Controls
Corp. and JAMS Turbo, Inc.) and from alternative fuels (such as bio-diesel
fuel
and liquefied natural gas) all targeting the same markets and claiming increased
fuel economy, and/or a decrease in toxic emissions and/or a reduction in engine
wear. Most of our competitors have substantially greater financial and marketing
resources than we do and may independently develop superior technologies which
may result in our technology becoming less competitive or obsolete. We may
not
be able to keep pace with this change. If we cannot keep up with these advances
in a timely manner, we will be unable to compete in our chosen
markets.
Competition
from the advancement of alternative fuels may lessen the demand for our products
and negatively impact our profitability.
Alternative
fuels, gasoline oxygenates and ethanol production methods are continually under
development. A number of automotive, industrial and power generation
manufacturers are developing more efficient engines, hybrid engines and
alternative clean power systems using fuel cells or clean burning gaseous fuels.
Vehicle manufacturers are working to develop vehicles that are more fuel
efficient and have reduced emissions using conventional gasoline. Vehicle
manufacturers have developed and continue to work to improve hybrid technology,
which powers vehicles by engines that utilize both electric and conventional
gasoline fuel sources. In the future, the emerging fuel cell industry offers
a
technological option to address increasing worldwide energy costs, the long-term
availability of petroleum reserves and environmental concerns. Fuel cells have
emerged as a potential alternative to certain existing power sources because
of
their higher efficiency, reduced noise and lower emissions. Fuel cell industry
participants are currently targeting the transportation, stationary power and
portable power markets in order to decrease fuel costs, lessen dependence on
crude oil and reduce harmful emissions. If the fuel cell and hydrogen industries
continue to expand and gain broad acceptance, and hydrogen becomes readily
available to consumers for motor vehicle use, we may not be able to compete
effectively. This additional competition could reduce the demand for Ethos
FR®
products, which would negatively impact our profitability, causing a reduction
in the value of your investment.
Our
officers and directors have significant voting power and may take actions that
may not be in the best interest of other
stockholders.
Our
officers and directors
control 46% of our outstanding
common
stock, of which Enrique de Vilmorin, our Chairman, controls approximately 45%.
If these stockholders act together, they may be able to exert significant
control over our management and affairs requiring stockholder approval,
including approval of significant corporate transactions. This
concentration of ownership may have the effect of delaying or preventing a
change in control and might adversely affect the market price of our common
stock. This concentration of ownership may not be in the best interests of
all our stockholders.
Risks
Related to Regulation and Governmental Action
A
change in government policies unfavorable to our products may cause demand
for
our products to decline.
Growth
and demand for our products may be driven primarily by federal and state
government policies. The continuation of these policies is uncertain, which
means that demand for our products may decline if these policies change or
are
discontinued. A decline in the demand for our products may negatively affect
our
results of operations, financial condition and cash flows.
A
change in environmental regulations or violations thereof could result in the
devaluation of our common stock and a reduction in the value of your
investment.
Environmental
laws and regulations, both at the federal and state level, are subject to change
and changes can be made retroactively. Consequently, even if we have the proper
permits at the present time, we may be required to invest or spend considerable
resources to comply with future environmental regulations or new or modified
interpretations of those regulations, which may reduce our
profitability.
Volatility
in gasoline selling price and production cost may reduce our gross
margins.
Ethos
FR®
products
are used as a fuel reformulator to reduce vehicle emissions. Therefore,
the supply and demand for gasoline impacts the price of raw materials and our
business and future results of operations may be materially adversely affected
if gasoline demand or price decreases.
Risks
Related to Our Stock Being Publicly Traded
We
have a material weakness in internal controls due to a limited segregation
of
duties, and if we fail to maintain an effective system of internal controls,
we
may not be able to accurately report our financial results or prevent fraud.
As
a result, current and potential stockholders could lose confidence in our
financial reporting which could harm the trading price of our
stock.
Effective
internal controls are necessary for us to provide reliable financial reports
and
prevent fraud. Inferior internal controls could cause investors to lose
confidence in our reported financial information, which could have a negative
effect on the trading price of our stock. With only 25 employees at the Company,
there is very limited segregation of duties, which the Company has identified
as
a material weakness in our internal controls.
Failure
to achieve and maintain effective internal controls in accordance with Section
404 of the Sarbanes-Oxley
Act of 2002 could prevent us from producing reliable financial reports or
identifying fraud. In addition, shareholders could lose confidence in our
financial reporting, which could have an adverse effect on our stock price.
Effective
internal controls are necessary for us to provide reliable financial reports
and
effectively prevent fraud, and a lack of effective controls could preclude
us
from accomplishing these critical functions. Commencing December 15, 2007,
we
will be required to document and test our internal control procedures in order
to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002,
which requires annual management assessments of the effectiveness of our
internal controls over financial reporting and a report by our independent
registered public accounting firm addressing these assessments. Assigned to
accounting issues at present are only our Chief Financial Officer and staff
accountants, which may be deemed to be inadequate. Although we intend to
augment our internal controls procedures and expand our accounting staff, there
is no guarantee that this effort will be adequate.
During
the course of our testing, we may identify deficiencies which we may not be
able
to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act
for
compliance with the requirements of Section 404. In addition, if we fail
to maintain the adequacy of our internal accounting controls, as such standards
are modified, supplemented or amended from time to time, we may not be able
to
ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404. Failure
to achieve and maintain an effective internal control environment could cause
us
to face regulatory action and also cause investors to lose confidence in our
reported financial information, either of which could have an adverse effect
on
our stock price.
Our
stock price may be volatile.
Since
our
recent name change to Ethos Environmental, our Common Stock has been trading
in
the public market since November 16, 2006. We cannot predict the extent to
which
a trading market will develop for our Common Stock or how liquid that market
might become. The trading price of our Common Stock has been and is expected
to
continue to be highly volatile as well as subject to wide fluctuations in price
in response to various factors, some of which are beyond our control. These
factors include:
|
·
|
|
Quarterly
variations in our results of operations or those of our competitors.
|
|
·
|
|
Announcements
by us or our competitors of acquisitions, new products, significant
contracts, commercial relationships or capital commitments.
|
|
·
|
|
Disruption
to our operations.
|
|
·
|
|
The
emergence of new sales channels in which we are unable to compete
effectively.
|
|
·
|
|
Our
ability to develop and market new and enhanced products on a timely
basis.
|
|
·
|
|
Commencement
of, or our involvement in, litigation.
|
|
·
|
|
Any
major change in our board of directors or management.
|
|
·
|
|
Changes
in governmental regulations or in the status of our regulatory approvals.
|
|
·
|
|
Changes
in earnings estimates or recommendations by securities analysts.
|
|
·
|
|
General
economic conditions and slow or negative growth of related markets.
|
In
addition, the stock market in general, and the market for technology companies
in particular, have experienced extreme price and volume fluctuations that
have
often been unrelated or disproportionate to the operating performance of those
companies. These broad market and industry factors may seriously harm the market
price of our Common Stock, regardless of our actual operating performance.
In
addition, in the past, following periods of volatility in the overall market
and
the market price of a company’s securities, securities class action litigation
has often been instituted against these companies. Such litigation, if
instituted against us, could result in substantial costs and a diversion of
our
management’s attention and resources.
The
liquidity of our common stock is affected by its limited trading
market.
Shares
of
our common stock are quoted on the OTC Bulletin Board under the symbol ETEV.OB.
We expect our shares to continue to be quoted in that market and not to be
de-listed, as we have no intention to stop publicly reporting. An
“established trading market” may never develop or be maintained. Active trading
markets generally result in lower price volatility and more efficient execution
of buy and sell orders. The absence of an active trading market reduces the
liquidity of an investment in our shares. The trading volume of our common
stock historically has been limited and sporadic. Our daily trading volume
has averaged approximately 4,664 shares since November 16, 2006. As a
result of this trading activity, the quoted price for our common stock on the
OTC Bulletin Board is not necessarily a reliable indicator of its fair market
value, and the low trading volume may expose the price of our common stock
to
volatility. Further, if we cease to be quoted, holders would find it more
difficult to dispose of, or to obtain accurate quotations as to the market
value
of, our common stock and the market value of our common stock would likely
decline.
A
significant number of our shares will soon become eligible for sale and their
sale or potential sale may depress the market price of our common
stock.
Some
or
all of the shares of common stock may be offered from time to time in the open
market pursuant to Rule 144, and these sales may have a depressive effect on
the
market for our shares of common stock. In general, a person who has held
restricted shares for a period of one year may, upon filing with the SEC a
notification on Form 144, sell into the market common stock in an amount equal
to the greater of 1% of the outstanding shares or the average weekly number
of
shares sold in the last four weeks prior to such sale. Such sales may be
repeated once each three months, and any of the restricted shares may be sold
by
a non-affiliate after they have been held two years.
Investors
should not anticipate receiving cash dividends on our common
stock.
We
have
never declared or paid any cash dividends or distributions on our capital stock.
We currently intend to retain any future earnings to support operations
and to finance expansion and, therefore, we do not anticipate paying any cash
dividends on our common stock in the foreseeable future.
Our
Common Stock has a small public float and future sales of our Common Stock,
or
sales of shares being registered under this document may negatively affect
the
market price of our Common Stock.
We
cannot
predict the effect, if any, that future sales of shares of our Common Stock
into
the market will have on the market price of our Common Stock. However, sales
of
substantial amounts of Common Stock may materially and adversely affect
prevailing market prices for our Common Stock.
Because
the market for and liquidity of our shares is volatile and limited, and because
we are subject to the "Penny Stock" rules, the level of trading activity in
our
Common Stock may be reduced.
Our
Common Stock is quoted on the OTCBB. The OTCBB is generally considered to be
a
less efficient market than the established exchanges or the NASDAQ markets.
While our Common Stock continues to be quoted on the OTCBB, an investor may
find
it more difficult to dispose of, or to obtain accurate quotations as to the
price of our Common Stock, compared to if our securities were traded on NASDAQ
or a national exchange. In addition, our Common Stock is subject to certain
rules and regulations relating to "penny stocks" (generally defined as any
equity security that is not quoted on the NASDAQ Stock Market and that has
a
price less than $5.00 per share, subject to certain exemptions). Broker-dealers
who sell penny stocks are subject to certain "sales practice requirements"
for
sales in certain nonexempt transactions (i.e., sales to persons other than
established customers and institutional "accredited investors"), including
requiring delivery of a risk disclosure document relating to the penny stock
market and monthly statements disclosing recent bid and offer quotations for
the
penny stock held in the account, and certain other restrictions. If the
broker-dealer is the sole market maker, the broker-dealer must disclose this,
as
well as the broker-dealer's presumed control over the market. For as long as
our
securities are subject to the rules on penny stocks, the liquidity of our Common
Stock could be significantly limited. This lack of liquidity may also make
it
more difficult for us to raise capital in the future.
Included
in this prospectus are “forward-looking” statements, as well as historical
information. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, we can give no assurance that the
expectations reflected in these forward-looking statements will prove to be
correct. Our actual results could differ materially from those anticipated
in forward-looking statements as a result of certain factors, including matters
described in the section titled “Risk Factors.” Forward-looking statements
include those that use forward-looking terminology, such as the words
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,”
“plan,” “will,” “shall,” “should,” and similar expressions, including when used
in the negative. Although we believe that the expectations reflected in
these forward-looking statements are reasonable and achievable, these statements
involve risks and uncertainties and no assurance can be given that actual
results will be consistent with these forward-looking statements.
Important factors that could cause our actual results, performance or
achievements to differ from these forward-looking statements include the factors
described in the “Risk Factors” section and elsewhere in this
prospectus.
All
forward-looking statements attributable to us are expressly qualified in their
entirety by these and other factors. We undertake no obligation to update
or revise these forward-looking statements, whether to reflect events or
circumstances after the date initially filed or published, to reflect the
occurrence of unanticipated events or otherwise.
WHERE
YOU CAN FIND MORE INFORMATION
We
have
filed a registration statement on Form SB-2 with the U.S. Securities and
Exchange Commission, or the SEC, to register the shares of our common stock
being offered by this prospectus. In addition, we file annual, quarterly
and current reports, proxy statements and other information with the SEC.
You may read and copy any reports, statements or other information that we
file at the SEC’s public reference facilities at 100 F Street, NE, Washington DC
20549. Please call the SEC at (800) SEC-0330 for further information
regarding the public reference facilities. The SEC maintains a website,
http://www.sec.gov, which contains reports, proxy statements and information
statements and other information regarding registrants that file electronically
with the SEC, including us. Our SEC filings are also available to the
public from commercial document retrieval services. Information contained
on our website should not be considered part of this prospectus.
You
may
also request a copy of our filings at no cost by writing or telephoning us
at:
Ethos
Environmental, Inc.
6800
Gateway Park Drive
San
Diego, California 92154
Attention:
Mr. Enrique de Vilmorin
President
and Chief Executive Officer
(619)
575-6800
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some
of
the statements under “Prospectus Summary,” “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,”
“Business,” and elsewhere in this prospectus, constitute forward-looking
statements. These statements involve risks known to us, significant
uncertainties, and other factors which may cause our actual results, levels
of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed
or
implied by those forward-looking statements.
You
can
identify forward-looking statements by the use of the words “may,” “will,”
“should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “intends,” “potential,” “proposed,” or “continue” or the negative of
those terms. These statements are only predictions. In evaluating these
statements, you should specifically consider various factors, including the
risk
factors outlined above. These factors may cause our actual results to differ
materially from any forward-looking statement.
Although
we believe that the exceptions reflected in the forward-looking statements
are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.
We
will
not receive any proceeds from the sale of the shares of our Common Stock by
the
selling stockholders named herein.
The
common stock to be sold by the selling shareholders is common stock that is
currently issued and outstanding. Accordingly, there will be no dilution to
our
existing shareholders.
Market
for Common Stock
Bid
and
ask prices for our Common Stock are quoted from broker dealers on the Bulletin
Board. Ethos’ trading symbol is “ETEV.”
The
following table contains information about the range of high and low bid prices
for our Common Stock for each quarterly period from Q1 2005 through Q1 2007
based upon reports of transactions on the OTCBB.
Fiscal
2005*
|
|
Low
|
|
High
|
|
First
Quarter
|
|
$
|
6.00
|
|
$
|
18.00
|
|
Second
Quarter
|
|
$
|
7.20
|
|
$
|
12.00
|
|
Third
Quarter
|
|
$
|
3.00
|
|
$
|
32.40
|
|
Fourth
Quarter
|
|
$
|
6.00
|
|
$
|
22.80
|
|
Fiscal
2006*
|
|
|
|
|
|
First
Quarter
|
|
$
|
6.60
|
|
$
|
13.20
|
|
Second
Quarter
|
|
$
|
6.00
|
|
$
|
11.76
|
|
Third
Quarter
|
|
$
|
3.00
|
|
$
|
7.68
|
|
Fourth
Quarter
|
|
$
|
2.00
|
|
$
|
11.15
|
|
Fiscal
2007*
|
|
|
|
|
|
First
Quarter
|
|
$
|
3.05
|
|
$
|
6.00
|
|
*The
high
and low prices listed have been rounded up to the next highest two decimal
places.
The
market price of our Common Stock is subject to significant fluctuations in
response to variations in our quarterly operating results, general trends in
the
market for the products we distribute, and other factors, over many of which
we
have little or no control. Broad market fluctuations, as well as general
economic, business and political conditions, may adversely affect the market
for
our Common Stock, regardless of our actual or projected performance. On June
11,
2007, the most recent trading day on which shares of the Company were traded,
the closing bid price of our Common Stock as reported on the OTCBB was $2.86
per
share.
Holders
As
of
June 11, 2007, there were 876 holders of record of our Common
Stock.
Dividend
Policy
We
have
never declared dividends or paid cash dividends on our Common Stock. We intend
to retain and use any future earnings for the development and expansion of
our
business and do not anticipate paying any cash dividends in the foreseeable
future.
Transfer
Agent
Our
transfer agent’s contact information is as follows:
Justeene
Blankenship
Action
Stock Transfer Corp.
7069
S.
Highland Dr., Suite 300
Salt
Lake
City, UT 84121
(801)
274-1088 office
(801)
599-3678 cell
(801)
274-1099 fax
www.actionstocktransfer.com
CONDITION
AND RESULTS OF OPERATIONS
General
This
discussion and analysis should be read in conjunction with our financial
statements and accompanying notes, which are included elsewhere in this
prospectus. This discussion includes forward-looking statements that involve
risks and uncertainties. Operating results are not necessarily indicative of
results that may occur in future periods. When used in this discussion, the
words “believes”, “anticipates”, “expects” and similar expressions are intended
to identify forward-looking statements. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected.
Our
business and results of operations are affected by a wide variety of factors,
as
we discuss under the caption “Risk Factors” and elsewhere in this prospectus,
which could materially and adversely affect us and our actual results. As a
result of these factors, we may experience material fluctuations in future
operating results on a quarterly or annual basis, which could materially and
adversely affect our business, financial condition, operating results and stock
price.
Any
forward-looking statements herein speak only as of the date hereof. Except
as
required by applicable law, we undertake no obligation to publicly release
the
results of any revisions to these forward-looking statements that may be made
to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
General
Discussion on Results of Operations and Analysis of Financial
Condition
We
begin
our General Discussion and Analysis with a discussion of the Critical Accounting
Policies and the Use of Estimates, which we believe are important for an
understanding of the assumptions and judgments underlying our financial
statements. We continue with a discussion of the Results of Operations for
the
three-month periods ended March 31, 2007 and 2006 and for the years ended
December 31, 2006 and 2005, followed by a discussion of Liquidity and
Capital Resources available to finance our operations.
Since
inception in 2000, Ethos Environmental has grown its customer base to thousands
of diverse clients in over 15 countries worldwide, using the most effective
sales tool possible - a product that works! In addition to an effective and
desirable product, the company’s success also derives from the careful
development and tenacious implementation of a structured “proof-of-concept”
marketing strategy.
Throughout
this “proof-of-concept” sales and marketing phase, gross sales for Ethos
Environmental have consistently exceeded forecasts, reaching more than $1.78
million by the end of 2005, and $4.77 million by the end of 2006. Even more
significant growth is anticipated for 2007, with sales in established markets
in
the U.S., China, Ecuador, Africa and Europe expected to top current forecasts.
Furthermore, market implementation plans anticipate growth in 2007 and beyond,
leading to gross multi million sales in 2008. These projections are based on
the
product’s proven ability to improve fuel efficiency while reducing emissions,
the Company’s proven ability to penetrate new markets and build a solid base of
loyal customers, and the world’s increasing costs in the petro-economic markets.
Looking
forward, marketing will constitute a significant portion of company expenditures
as Ethos Environmental continues to develop sales of new ester-based fuel and
engine enhancing products. We are in the process of developing new products
covering areas of synthetic oils, sulfur substitutes, and varied formulations
of
the original Ethos
FR®
and its
enhancements.
In
addition, we will continue to initiate patents to cover ongoing development
of a
new engine design that combines past, present and state-of-the-art technologies.
This new system generates rotary shaft power using only a fraction of the fuel
consumed by today’s internal combustion engines, and testing has yielded power
output that rivals current technologies with just a fraction of the emissions.
We have great hope that this project will revolutionize power generation as
we
know it, significantly easing pollution from the usage of fossil
fuels.
The
management of Ethos Environmental is excited by the enthusiastic acceptance
that
Ethos
FR® products
have received - domestically and all around the world. We are proud to provide
a
product that is part of the solution to the high cost of fuel and the health
costs of environmental pollutants. Since inception management has been focused
on the development of a solid infrastructure, building relationships and
establishing the foundation of a business that will continue to grow - non-stop
- into the future.
Critical
Accounting Policies
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make a wide variety of estimates
and assumptions that affect (i) the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the date of the
financial statements, and (ii) the reported amounts of revenues and expenses
during the reporting periods covered by the financial statements. Our management
routinely makes judgments and estimates about the effect of matters that are
inherently uncertain. As the number of variables and assumptions affecting
the
future resolution of the uncertainties increases, these judgments become even
more subjective and complex. The most significant accounting policies that
are
most important to the portrayal of our current financial condition and results
of operations are as follows:
Revenue
Recognition
The
Company recognizes revenue in accordance with Securities and Exchange Commission
Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial
Statements”. Revenue consists of the sale of products and is recognized only
when the price is fixed or determinable, persuasive evidence of an arrangement
exists, the product is shipped, and collectability is reasonably assured.
Acquired
Goodwill
Goodwill
represents the excess of the purchase price of acquired assets over the fair
values of the identifiable assets acquired and liabilities assumed. Pursuant
to
SFAS No. 141, “Business Combinations” the Company does not amortize goodwill,
but tests for impairment of goodwill on an annual basis and at any other time
if
events occur or circumstances indicate that the carrying amount of goodwill
may
not be recoverable. Circumstances that could trigger an impairment test include
but are not limited to: a significant adverse change in the business climate
or
legal factors; an adverse action or assessment by a regulator; unanticipated
competition and loss of key personnel. Goodwill is tested for impairment using
present value techniques of estimated future cash flows; or using valuation
techniques based on multiples of earnings. If the carrying amount of goodwill
exceeds the implied fair value of that goodwill, an impairment loss is charged
to operations.
Customer
Relationships
The
Company used the replacement cost approach for accounting for customer
relationships. This approach uses an estimate of what a notional purchaser
would
likely pay for the intangible asset in order to be in the same position of
the
Company at the date of the closing of the Asset Purchase Agreement described
above in “Acquired Goodwill”.
Legal
Contingencies
From
time
to time, we are involved in routine legal matters incidental to our business.
In
the opinion of management, the ultimate resolution of such matters will not
have
a material adverse effect on our financial position, results of operations
or
liquidity.
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2007 AS COMPARED WITH THE
THREE MONTHS ENDED MARCH 31, 2006
Income
Taxes
$9,000,000
of net operating loss carry-forwards as of March 31, 2007, may be used to offset
future taxable income. There will be limitations on the amount of net operating
loss carry-forwards that can be used due to the change in the control of the
management of the Company. No tax benefit has been reported in the financial
statements, because we believe there is a 50% or greater chance the
carry-forwards will expire unused.
Accordingly,
the potential tax benefits of the loss carry-forwards are offset by valuation
allowance of the same amount.
Inflation
Our
results of operations have not been affected by inflation and we do not expect
inflation to have a significant effect on its operations in the future.
Research
and Development Costs
Research
and development costs are charged to operations when incurred and are included
in operating expenses. The amounts charged for period ended March 31, 2007
amounted to $7,500, compared to $82,933 for the same period in the prior year.
All of these costs are borne by the Company.
Revenues
We
recognized revenues of $ 2,697,133 for the period ended March 31, 2007 compared
to revenues of $ 1,318,925 for the same period in the prior year, an increase
of
$1,378,208 or 105%The primary source of revenue for the period ended March
31,
2007 is from the sale of Ethos FR®.
We
expect
our tremendous growth to continue as sales increase and the sales and marketing
strategies are implemented into the targeted markets and we create an
understanding and awareness of our technology through proof of performance
demonstrations with potential customers.
Our
future growth is significantly dependent upon our ability to generate sales.
Our
main priorities relating to revenue are: (1) increase market awareness of Ethos
FR®
product
through our sales and marketing plan, (2) growth in the number of customers
and
vehicles per customer, and (3) providing extensive customer service and support.
Gross
Profit
Gross
profit, defined as revenues less cost of goods sold, was $ 1,831,826 or 68%
of
sales for the period ended March 31, 2007, compared to $ 1,087,862 or 82% of
sales for the period ended March 31, 2006. In terms of absolute dollars, gross
profit increased 68% for the period ended March 31, 2007 compared to same period
in the prior year due primarily to the sales of the Ethos FR®
product.
Cost
of
goods sold was $ 865,307 for the period ended March 31, 2007, which represented
32% of revenues compared to $ 231,063 for the comparable period in the prior
year, which represented 18% of revenues.
Operating
Expenses
Our
current operating expenses are comprised of costs associated with
administrative, salary, marketing, legal and business development. We will
have
additional operating expenses for additional staff members as they are hired.
We
have allocated funds in our capital structure for our current expenses.
General
& Administrative expenses incurred during the period ended March 31, 2007
totaled $ 504,166. These expenses were incurred primarily for the following
reasons:
Accounting,
audit, bookkeeping and director fees totaling $ 51,710
Business
consulting fees of $ 7,042
Outside
Services of $ 10,000
Office
expenses of $ 51,148
Depreciation
of $ 101,231
Amortization
of $ 100,036
Salaries
and Wage expense of $175,315
Similar
expenses incurred for the period ended March 31, 2006 were $ 264,828 and were
incurred primarily for expenses of a similar nature.
Also,
for
comparison purposes, there were 483,500 newly issued shares for the payment
of
services during the period ended March 31, 2007, compared to196,863 shares
issued for cash during the period ended March 31, 2006.
Research
and Development Costs
Research
and development costs are charged to operations when incurred and are included
in general and administrative expenses. The amounts expensed for the period
ended March 31, 2007 and 2006 amounted to $ 7,500 and $ 82,933,
respectively.
Net
Profit
We
realized a net profit for the period ended March 31, 2007 of $ 1,018,660 as
compared to a net profit of $ 698,033 for the comparable prior year period.
Non-Operating
Income And Expenses
Non-operating
income, net of expenses, increased in the March 31, 2007 versus 2006, due to
an
increase in sales. Interest expense increased to $177,660 during the 3 months
ended March 31, 2007 from 0 the comparable period in 2006. The interest was
directly associated with the interest-only loan for $4,750,000, related to
the
purchase of our new building.
Liquidity
and Capital Resources
During
the three months ended March 31, 2007, we had a working capital deficit of
$3,164,635 and stockholders’ equity of $ 7,098,908 compared to a working capital
deficit of $ 4,221,414 and stockholders’ equity of $ 1,546,734 during the
comparable period in the prior year.
On
March
31, 2007, the Company had $ 47,719 in cash and $ 300,000 in restricted cash,
total assets of $13,784,806 and total liabilities of $ 6,685,898, compared
to $
98,566 in cash and $ 300,000 in restricted cash, total assets of $7,162,600
and
total liabilities of $ 5,615,866 on March 31, 2006.
We
anticipate, based on currently proposed plans and assumptions relating to our
operations, that our current cash and cash equivalents together with projected
cash flows from operations and projected revenues will be sufficient to satisfy
our contemplated cash requirements for the next 12 months. Our contemplated
cash
requirements for 2007 and beyond will depend primarily upon the level of sales
of our products, inventory levels, product development, sales and marketing
expenditures and capital expenditures.
Management
of the Company has undertaken steps as part of a plan with the goal of
sustaining the Company operations for the next twelve months and beyond. These
steps include: (a) attempting to raise additional capital and/or other forms
of
financing; (b) controlling overhead and operating expenses; and (c) continuing
to increase the sales of its fuel reformulating product. There can be no
assurance that any of these efforts will be successful.
Loan
Facilities
On
February 7, 2007, we entered into an equipment lease agreement with Mazuma
Capital Corp. wherein the Company agreed to a 24-month sale and leaseback
arrangement for up to $800,000 of its manufacturing equipment. The lease calls
for a monthly payment based on a factor of .04125 times the average outstanding
loan balance during the month. Through May 10, 2007, the company has placed
property valued at $ 740,000 under this lease arrangement with Mazuma Capital
Corp.
Inflation
has not significantly impacted the Company’s operations.
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements that have or are reasonably likely
to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to our investors.
RESULTS
OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2006 AND
2005
The
following financial data compares the balances as relates to Ethos
Environmental, Inc. for the fiscal years ended December 2006 and 2005.
Revenues
We
recognized revenues of $4,768,013 for the year ended December 31, 2006 compared
to revenues of $1,780,825 for the year ended December 31, 2005, an increase
of
$2,987,188 or 168%. The primary source of revenue for the years ended December
31, 2006 is from the sale of Ethos FR®.
We
expect
our tremendous growth to continue as sales increase and the sales and marketing
strategies are implemented into the targeted markets and we create an
understanding and awareness of our technology through proof of performance
demonstrations with potential customers.
Our
future growth is significantly dependent upon our ability to generate sales.
Our
main priorities relating to revenue are: (1) increase market awareness of Ethos
FR®
product
through our sales and marketing plan, (2) growth in the number of customers
and
vehicles per customer, and (3) providing extensive customer service and support.
Gross
Profit
Gross
profit, defined as revenues less cost of goods sold, was $3,427,878 or 72%
of
sales for the year ended December 31, 2006, compared to $1,254,366 or 70% of
sales for the year ended December 31, 2005. In terms of absolute dollars, gross
profit increased 173% for the 2006 calendar year compared to the 2005 calendar
year due primarily to the sales of the Ethos FR®
product.
Cost
of
goods sold was $1,340,135 for the 2006 calendar year, which represented 28%
of
revenues compared to $526,459 for the 2005 calendar year, which represented
30%
of revenues.
Operating
Expenses
Our
current operating expenses are comprised of costs associated with
administrative, salary, marketing, legal and business development. We will
have
additional operating expenses for additional staff members as they are hired.
We
have allocated funds in our capital structure for our current expenses.
General
& Administrative expenses incurred during the year ended December 31, 2006
totaled $5,346,409. These expenses were incurred primarily for the following
reasons:
Legal
fees of approximately $ 136,598
Accounting,
audit, bookkeeping and director fees totaling $ 57,676
Business
consulting fees of $ 4,862,976
Outside
Services of $159,749
Office
expenses of $ 129,410
Similar
expenses incurred for the year ended December 31, 2005 were $1,821,160 and
were
incurred primarily for consulting services of a similar nature.
Also,
for
comparison purposes, there were 4,910,000 newly issued shares for the payment
of
services during the year ended December 31, 2006, compared to 5,108,190 shares
issued for cash during the year ended December 31, 2005.
Research
and Development Costs
Research
and development costs are charged to operations when incurred and are included
in general and administrative expenses. The amounts expensed for the years
ended
December 31, 2006 and 2005 amounted to $112,051 and $132,404,
respectively.
Net
Loss
We
incurred a net loss for the year ended December 31, 2006 of $6,556,803 as
compared to a net loss of $1,051,637 for the comparable prior year period.
Non-Operating
Income and Expenses
Non-operating
income, net of expenses, increased in the year ended December 31, 2006 versus
2005, due to the settlement of a substantial amount due to one of our vendors.
Interest expense increased to $620,244 during the 12 months ended December
31,
2006 from $0 in 2005. The interest was directly associated with the
interest-only loan for $4,750,000, related to the purchase of our new building.
Other expenses increased to $58,931 in 2006 versus none in
2005.
Liquidity
and Capital Resources
On
December 31, 2006, we had a working capital of $49,801 and stockholders’ equity
of $6,096,938 compared to a working capital deficit of $405,752 and
stockholders’ equity of $610,392 on December 31, 2005.
On
December 31, 2006, the Company had $64,867 in cash and $300,000 in restricted
cash, total assets of $11,920,143 and total liabilities of $5,823,205, compared
to $198,498 in cash and $300,000 in restricted cash, total assets of $1,446,212
and total liabilities of $793,395 on December 31, 2005.
We
anticipate, based on currently proposed plans and assumptions relating to our
operations, that our current cash and cash equivalents together with projected
cash flows from operations and projected revenues will be sufficient to satisfy
our contemplated cash requirements for the next 12 months. Our contemplated
cash
requirements for 2007 and beyond will depend primarily upon the level of sales
of our products, inventory levels, product development, sales and marketing
expenditures and capital expenditures.
Management
of the Company has undertaken steps as part of a plan with the goal of
sustaining the Company operations for the next twelve months and beyond. These
steps include: (a) attempting to raise additional capital and/or other forms
of
financing; (b) controlling overhead and operating expenses; and (c) continuing
to increase the sales of its fuel reformulating product. There can be no
assurance that any of these efforts will be successful.
Loan
Facilities
On
February 7, 2007, we entered into an equipment lease agreement with Mazuma
Capital Corp. wherein the Company agreed to a 24-month sale and leaseback
arrangement for up to $800,000 of its manufacturing equipment. The lease calls
for a monthly payment based on a factor of .04125 times the average outstanding
loan balance during the month. Through March 29, 2007, the company has placed
property valued at $737,968 under this lease arrangement with Mazuma Capital
Corp.
Inflation
has not significantly impacted the Company’s operations.
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements that have or are reasonably likely
to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to our investors.
Overview
The
mission of Ethos Environmental is to be recognized as the industry standard
for
high quality, non-toxic cleaning and lubricating products that increase fuel
mileage and reduce these ecologically damaging emissions from vehicles, and
at a
price everyone can afford. The goal of the company is to make the world a better
place, “one gallon at a time”. According to the Environmental Protection Agency
(EPA), “The burning of fuels releases carbon dioxide (CO2)
into
the atmosphere and contributes to climate change [Global Warming], but these
emissions can be reduced by improving your car’s fuel efficiency.”
Air
pollution caused by cars, trucks and other vehicles burning petroleum-based
fuels is one of the most harmful and ubiquitous environmental problems.
Furthermore, local accumulation in heavy traffic is the greatest source of
community ambient exposure, largely because carbon monoxide is formed by
incomplete combustion of carbon containing fuels. When blended with fuels,
Ethos
FR®
products
reduce the emissions of hydrocarbons, nitrogen oxides, carbon monoxide,
particulate matter and other harmful compounds of combustion.
Ethos
Environmental manufactures and distributes a unique line of fuel reformulators
that contain a blend of low and high molecular weight esters. The product adds
cleaning and lubrication qualities to any type of fuel or motor oil. The overall
benefits are increased fuel mileage, reduced emissions and reduced maintenance
costs as the product allows engines to perform cooler, smoother and with more
vigor. The product is currently being distributed on six (6) continents with
excellent results being related back to the company.
How
does
it work? Ethos FR®
removes
carbon deposits, one of the culprits that cause fuel to combust incompletely,
resulting in wasted fuel that creates toxic emissions. The combination of
cleaning and lubricating esters in Ethos FR®
stabilize the fuel without changing its specifications. Moving parts function
more smoothly with reduced heat and friction, requiring less maintenance.
Horsepower returns closer to the manufacturer specifications.
Ethos
fuel reformulating products increase fuel mileage and reduce emissions by
burning fuel more completely. Exhaust is essentially unburned fuel - wasted
fuel
- so when that fuel is used more completely, the engine delivers better mileage
from every tank. Efficient fuel use also improves engine performance, because
a
more complete combustion process obtains increased power from every engine
revolution.
Diesel
exhaust is a major contributor of particulate matter concentrations.
Representing only 2 percent of the vehicles on the road, diesel powered vehicles
generate more than half of the particulates and nearly a third of the nitrogen
oxides in the air, according to a study by the California Air Resources Board.
Air pollution monitoring efforts by the American Lung Association indicate
that
diesel accounts for 70% of the cancer risk. Furthermore, pioneers in the study
of global warming factors have come to believe that particulate matter, such
as
that emitted by diesel engines, plays a far more critical role in the
development of the “greenhouse effect” than previously suspected.
The
primary task for the Company is to distinguish itself as an industry leader
in
the reduction of fuel costs and emission problems at a profit gain to the
commercial user. Part of the challenge before us is to differentiate Ethos
FR®
from two
types of products in this industry, additives - that are purported to increase
fuel mileage and oxygenates - which are mandated to lower emissions. Both
provide short-term benefits at the price of long-term engine or environmental
problems.
Additives
contain highly refined petrochemicals or compressed hydrocarbons that promise
better fuel mileage and sometimes lower emissions, by “cleaning” the engine.
Used mainly by individual consumers, they are expensive and commonly sold at
the
auto parts and retail stores. More than five thousand EPA-registered fuel
additives compete in the retail market and although the EPA requires that such
products be registered, that registration constitutes neither endorsement nor
validation of the product’s claims.
Oxygenates,
such as methyl tertiary butyl ether (MTBE) and Ethanol, are intended to lower
emissions by adding oxygen to the fuel. Ethos FR®
products
actually complement federally mandated oxygenates by lowering emissions, but
as
mentioned earlier, Ethos FR®
is not
an oxygenate and cannot be used for the purpose of complying with current
language federal legislation.
In
contrast, Ethos FR®
products
have cleaning properties that contribute to the lubrication of the engine
instead of destroying it. The ester-based formula dissolves the gums and
residues and adds important lubrication that an engine needs. The engine stays
clean and lubricated, allowing it to run smoothly and efficiently.
Both
E85
and biodiesel, such as B5, are alternative measures currently being considered
for use by the federal government. However, these alternative measures rely
entirely on agricultural resources such as corn, barley, wheat and vegetable
oils. Realistically, the agricultural sector of the economy cannot hope to
produce sufficient quantities of these products to cause an appreciable effect
on global warming. This is a problem not facing Ethos FR®
as
the
product is readily available and continuously produced, and less
expensive.
While
the
debate on emissions reduction solutions continues, Ethos Environmental is making
a difference in cleaning the air today while reducing fuel costs to its
customers. Hundreds of millions of miles of road tests with Ethos FR®
have
proven that commercial fleets on average increase fuel mileage between 7% and
19% and reduce emissions by more than 30%. Ethos FR®
is
non-toxic, non-hazardous and works with any fuel used in cars, trucks, buses,
RV’s, ships, trains and generators.
The
overall result is that Ethos FR®
makes
engines combust fuel more efficiently. When an engine uses each measure of
fuel
to the maximum degree possible, it has two very important benefits. It reduces
fuel consumption and reduces non-combusted residues that an engine expels in
the
form of exhaust emissions such as hydrocarbons, nitrogen oxides, carbon
monoxide, particulate matter and other harmful products of combustion. Unused
fuel is saved in the fuel tank, waiting to be used efficiently by the engine,
instead of exhausted in the form of toxic emissions. Ethos FR®
reduces
emissions without adding any of its own components to the exhaust since it
is
99.99976% ash-less upon combustion, and
free
of carcinogenic compounds.
Ethos
Environmental is also at the forefront in the development of new blending
methods and is positioned to lead the industry with numerous new patents
currently under development.
Our
Corporate History
We
were
originally incorporated under the laws of the State of Idaho on January 19,
1926
under the name of Omo Mining and Leasing Corporation. The Company was renamed
Omo Mines Corporation on January 19, 1929. The name was changed again on
November 14, 1936 to Kaslo Mines Corporation and finally Victor Industries,
Inc.
on December 24, 1977.
As
Victor
Industries, Inc., the Company developed, manufactured, and marketed products
related to the use of the mineral known as zeolite. Zeolites have the unique
distinction of being nature's only negatively charged mineral. Zeolites are
useful for metal and toxic chemical absorbents, water softeners, gas absorbents,
radiation absorbents and soil and fertilizer amendments.
In
November of 2006, and as part of a two-step reverse merger, the Company merged
with and into Victor Nevada, Inc. a newly incorporated entity for the purpose
of
redomiciling under the laws of the State of Nevada. Concurrently therewith,
we
completed the merger transaction with Ethos Environmental, Inc., a privately
held Nevada corporation “Ethos”). The Company was the surviving entity. To more
adequately reflect the new direction of the Company the Company changed its
name
to Ethos Environmental, Inc. and adopted the business plan of Ethos.
The
proposed merger was submitted to the shareholders of Victor Industries, Inc.
pursuant to a Proxy Statement first filed with the Commission on March 25,
2006.
As fully described in the Company’s Form 8-K filed on November 11, 2006 with the
Commission, the shareholders of the Company and Ethos approved the merger,
and
the merger was legally effected on November 2, 2006.
Pursuant
to the agreement of merger between the Company and Ethos,
· |
The
Company was the surviving
corporation,
|
· |
The
Company acquired all issued and outstanding shares of Ethos in exchange
for 17,718,187 shares of common stock of the Company. Shares of Company
common stock, representing an estimated 97% of the total issued and
outstanding shares of Company common stock, shall be issued to the
Ethos
stockholders,
|
· |
The
shareholders of Concierge received pro rata for their shares of common
stock of Ethos, 17,718,187 shares of common stock of the Company
in the
merger, and all shares of capital stock of Ethos were
cancelled,
|
· |
The
officers and directors of Ethos became the officers and directors
of the
Company,
|
· |
The
name of Victor Industries, Inc. was changed to “Ethos Environmental,
Inc.”, and
|
· |
Ethos
requested a new symbol for trading on the Over the Counter Bulletin
Board
(“OTCBB”), which also reflects the reverse stock split of 1 for 1,200, the
new symbol of the Company is
“ETEV.”
|
Over
the
last decade, the unmatched value of Ethos
FR®
products
has been proven through millions of miles of on-the-road testing. On average,
customers have achieved a 7% to 19% increase in fuel mileage, and more than
a
30% reduction in emissions.
Ethos
seeks both a cleaner environment and economic success. As the name Ethos
suggests, we are committed to the highest ethical standards - in the product
that we sell, in the relationship with our clients, and in the conduct of our
business. The Company’s approach is to sell Ethos
FR®“one
gallon at a time”, earning the trust and loyalty of each customer by providing
products that perform as promised and make a positive difference in the
world.
Product
Ethos
manufactures a unique line of fuel reformulators that contain a blend of low
and
high molecular weight esters. Ethos
FR®
products
add cleaning and lubricating qualities to any type of fuel or motor oil,
allowing engines to perform cooler, smoother and with more vigor. The overall
benefits are increased fuel mileage, reduced emissions, and reduced maintenance
costs.
Ethos
fuel reformulating products increase fuel mileage and reduce emissions by
burning fuel more completely. Exhaust is essentially unburned fuel - wasted
fuel
- so when that fuel is used more completely, the engine delivers better mileage
from every tank. Efficient fuel use also improves engine performance, because
a
more complete combustion process obtains increased power from every engine
revolution.
Ethos
FR®
products
reduce fuel emissions, benefiting the environment in two notable ways:
|
1.
|
The
use of Ethos
FR®
products reduce engine exhaust emissions by 30% or more, including
measurable reductions in the emission of hydrocarbons (HC), nitrogen
oxides (Nox), and carbon monoxide (CO). All of these emissions are
highly
toxic and detrimental to the
environment.
|
|
2.
|
Ethos
FR®
products reduce emissions of particulate matter, especially in
diesel-powered engines. Diesel fuel is commonly dirty and maintaining
a
diesel engine in the prime condition necessary to reduce emissions
is both
expensive and time-consuming. As a result, diesel engines are a constant
source of air contaminants. In most industrialized countries, including
the U.S., diesel engines are one of the largest sources of air pollution.
When Ethos
FR®
products are added to diesel fuel, the engine runs cleaner, smoother
and
cooler - significantly reducing sooty exhaust. Engines treated with
Ethos
FR®
run with less friction, heat and noise. Fuel and lubricating systems,
filters, tanks, and injectors last longer, reducing maintenance
costs.
|
Ethos
FR®
products
provide risk-free benefits with an economic gain to the client. Customers
testify that they experience a monetary gain on fuel savings, and they say
they
experience an average improvement in mileage per gallon between 7% and 19%
depending on the fuel (gasoline or diesel), the vehicle used, and the individual
driver’s practices and driving traits.
Trademarks
We
own
the following trademark(s) used in this document (which is registered with
the
United States Patent and Trademark Office under Registration Number 3,015,561):
Ethos FR®.
Trademark rights are perpetual provided that we continue to keep the mark in
use. We consider these marks, and the associated name recognition, to be
valuable to our business.
Air
Quality Standards
Ethos
Environmental began the manufacturing and marketing of Ethos FR®
products
after ten years of successful product testing. During the early years,
widespread public environmental concerns were only beginning to surface. Air
quality standards were non-existent and fuel costs were low, making penetration
of the market an uphill battle.
In
recent
years most of the improvements in air quality have come through advancements
in
engine technologies. Through catalytic converters and computer controlled air
and fuel injection systems, engineers have designed cars that use fuel much
more
efficiently and pollute far less than ever before. But as new engine
technologies have reached their limits, the government has turned its attention
to the oil companies to produce cleaner-burning fuels.
The
approach of Ethos Environmental is to sell Ethos FR®“one
gallon at a time”, earning the respect and trust of each user. Over the past
decade, the Ethos FR®
product
has gone though millions of miles in road tests, and test after test has
demonstrated the ability of Ethos FR®
to
significantly reduce emissions while improving gas mileage. Now, at a time
of
skyrocketing fuel costs, the value of Ethos FR®
is
paying off for a long list of domestic customers and a growing contingent of
international clients.
Market
Research
Air
pollution caused by cars, trucks and other vehicles burning petroleum-based
fuels is one of the most harmful and ubiquitous environmental problems.
Furthermore, local accumulation in heavy traffic is the greatest source of
community ambient exposure, largely because carbon monoxide is formed by
incomplete combustion of carbon containing fuels.
Diesel
exhaust is a major contributor of particulate matter concentrations.
Representing only 2 percent of the vehicles on the road, diesel powered vehicles
generate more than half of the particulates and nearly a third of the nitrogen
oxides in the air, according to a study by the California Air Resources Board.
Air pollution monitoring efforts by the American Lung Association indicate
that
diesel accounts for 70% of the cancer risk. Furthermore, pioneers in the study
of global warming factors have come to believe that particulate matter, such
as
that emitted by diesel engines, plays a far more critical role in the
development of the “greenhouse effect” than previously suspected.
To
combat
this problem the U.S. Environmental Protection Agency developed a two-step
plan
to significantly reduce pollution from new diesel engines. (New Emission
Standards for Heavy-Duty Diesel Engines Used In Trucks and Buses) (October
1997,
EPA 420-F-97-016). The first step set new emissions standards for diesel engines
beginning in 2000. The second step sets even more stringent emission standards
that will take effect in 2007, combined with mandated reductions in the sulfur
levels of all diesel fuel.
When
blended with fuels, Ethos FR®
products
reduce the emissions of hydrocarbons (HC), nitrogen oxides (Nox) carbon monoxide
(CO), particulate matter (PM) and other harmful compounds of combustion. Given
these conditions, the commercial fuels consumer market represents an important
target for Ethos Environmental.
Competition
The
primary task for the Company is to distinguish itself as an industry leader
in
the reduction of fuel costs and emission problems at a profit gain to the
commercial user. Part of the challenge before us is to differentiate Ethos
FR®
from two
types of products in this industry, additives - that are purported to increase
fuel mileage and oxygenates - which are mandated to lower emissions. Both
provide short-term benefits at the price of long-term engine or environmental
problems.
Additives
contain highly refined petrochemicals or compressed hydrocarbons that promise
better fuel mileage and sometimes lower emissions, by “cleaning” the engine.
Used mainly by individual consumers, they are expensive and commonly sold at
the
auto parts and retail stores. More than five thousand EPA-registered fuel
additives compete in the retail market and although the EPA requires that such
products be registered, that registration constitutes neither endorsement nor
validation of the product’s claims.
Oxygenates,
such as methyl tertiary butyl ether (MTBE) and Ethanol, are intended to lower
emissions by adding oxygen to the fuel. Ethos FR®
products
actually complement federally mandated oxygenates by lowering emissions, but
as
mentioned earlier, Ethos FR®
is not
an oxygenate and cannot be used for the purpose of complying with current
language federal legislation.
In
contrast, Ethos FR®
products
have cleaning properties that contribute to the lubrication of the engine
instead of destroying it. The ester-based formula dissolves the gums and
residues and adds important lubrication that an engine needs. The engine stays
clean and lubricated, allowing it to run smoothly and efficiently.
Marketing
Strategy
Ethos
FR®
products
are ideally positioned to capitalize on increasing fuel prices and regulatory
pressure to tighten emissions standards. Fuel is a significant operating cost
for companies that use cars, trucks or vessel fleets in their daily business,
especially where competitive markets make it difficult to pass along fuel
increases. Every hike in the price of fuel hurts the profitability of that
company. For these businesses, obtaining better mileage offers a crucial
competitive edge, and the goal of Ethos Environmental is to help them maximize
their fuel use and maintain profitability.
From
its
earliest days, Ethos has focused on the product demonstration as the most
effective means of introducing Ethos FR®
to
potential users. During this demonstration phase, Ethos supplies product to
treat a sample of the fleet at no cost to the client. It is vital that the
customer understand and prove the effectiveness of Ethos FR®
in their
fleets. This demonstration phase will last as long as necessary to quantify
the
value and projected savings possible once the entire fleet is treated.
Through
this demonstration process, we prove to each customer that they can realize
the
benefits of reduced emissions, smoother-running vehicles and lower maintenance
costs at virtually no risk, because the reduction in fuel usage will more than
cover the expense of using Ethos FR®.
In
fact, the addition of Ethos FR®
will
result in fuel savings beyond the cost of treatment, resulting in monetary
gain
to the user.
Commercial
fleets vary in size from a few to thousands of vehicles. Such fleets generally
produce immediate sales results because administrative requirements are minimal
and the product demonstration phase is brief. Typically, a sample of the fleet
is treated and the potential customer is quickly able to quantify the value
and
project the savings that the use of Ethos FR®
will
produce. Usually a fleet’s oldest and dirtiest vehicles, or vehicles out of
warranty, are included in the demonstration. Such vehicles amplify the
effectiveness of the products and help to ease any initial client objections
regarding manufacturer warranties. Once the demonstration is underway, Ethos
FR®
products
sell themselves, increasing fuel mileage between 7% and 19% and reducing
emissions by more than 30%. Once the effectiveness of the product has been
established, a conscientious customer-service program ensures continued use.
The
Ethos
Environmental strategy has been to approach each market from the perspective
of
the customer’s strongest motivation, whether to reduce fuel costs or reduce
engine emissions. From a marketing standpoint, it is most cost-effective for
Ethos Environmental to focus on commercial fuel users that keep track of
maintenance and operating expenses. These consumers are more sensitive to
pressures from rising fuel costs and more concerned about meeting emissions
standards.
Rising
fuel costs will always be a marketing advantage for Ethos. Higher fuel prices
decrease the cost to treat each gallon of fuel; resulting in even greater
savings to Ethos clients. The Company’s marketing strategy strengthens as the
price of fuel increases. Even where cost savings are a client’s primary
motivator, the use of Ethos FR®
identifies the user as an environmentally conscientious business. It also
creates goodwill within the community through the reduction of unhealthful
and
unsightly exhaust emissions.
Target
Markets
Domestic
According
to the American Petroleum Institute, the United States fuels consumer market
is
comprised of the following segments: retail consumer 27%, government agencies
16%, ground fleets 14%, industrial users 10%, aircraft 9%, maritime 6%,
miscellaneous 4%.
The
Company’s typical customers use cars, trucks or vessels in their day-to-day
operations. Fuel is a significant operating cost, and consequently these fleets
are particularly sensitive to fuel price fluctuations and strict emissions
standards. The ideal clients are those with fleet managers and are conscientious
about keeping track of operating expenses. They understand that every hike
in
fuel price hurts their profitability, this being a critical factor wherever
competitive markets make it difficult to pass on the price increases to their
clients. Making it critical for businesses to obtain better mileage as a
competitive advantage.
Maritime
and government agencies are desirable for their large fuel volume use and
industry credibility. They offer the Company medium to long-term sales, since
the process requires a longer lead-time to close. The product demonstration
phase and administrative requirements are generally more complex, particularly
with large government institutions. At the same time, they offer large volume
sales and a continual source of staged orders that promote production
stability.
Marine
vessels run on bunker fuel that is less refined than diesel. A mid-size ship
will use more than half a ton per hour of operation, or 125 gallons of fuel
per
hour. For example, a mid-size vessel running on bunker on a typical trip to
Japan from Los Angeles will require a half a ton per hour, or 180 tons. This
represents a total of 45,000 gallons of fuel that requires 4,500 oz. (35
gallons) of Ethos FR®.
This
vessel would use approximately one drum (55gals.) of Ethos FR®
per
month. Accordingly, maritime customers represent a large and solid client base.
Like
the
United States, countries all around the world are endeavoring to deal with
the
high costs of petroleum products and the detrimental effects of those products
on the environment. The Company has found broad and enthusiastic acceptance
of
its Ethos FR®
products
globally. During the past three years, the Company has opened markets in Asia,
Latin America, Canada, Australia, Africa and Europe, often dealing directly
with
government entities that possess the power to implement widespread use of Ethos
FR®
-
whether in citywide public transportation systems or countrywide fuel
distribution structures.
As
with
our domestic client base, international customers of Ethos FR®
appreciate the benefits of improved mileage and reduced emissions. And in
countries that lack the regulatory structures necessary to control vehicle
emissions and fuel efficiency, the benefits of Ethos FR®
are even
more pronounced.
Customers
We
have a
very diversified customer list. Although we have many customers utilizing
products, the broadly diversified base means there is no significant
concentration in any industry. We derive revenue from our customers as discussed
in Note 1, "Organization and Significant Accounting Policies: Revenue
Recognition" of the consolidated financial statements. Two customers accounted
for 88% of our revenues for the fiscal year ended December 31, 2006. One
customer accounted for 40% and the second customer accounted for 48%. One of
these customers accounted for 62% of our accounts receivable at December 31,
2006.
Supply
Arrangements
We
presently obtain our raw materials on an exclusive basis from five (5)
suppliers. However, these arrangements are not governed by any formal written
contract. Accordingly, either party can terminate the arrangement at any time,
including the exclusivity aspect of the arrangement. If these suppliers are
not
able to provide us with sufficient quantities of the product, or choose not
to
provide the product at all (for any reason), or if exclusivity is lost, business
and planned operations could be adversely affected. Although management has
identified alternate suppliers of the products, no assurance can be given that
the replacement products will be comparable in quality to the product presently
supplied to us by these companies, or that, if comparable, that it can be
acquired under acceptable terms and conditions.
Revenue
and Fixed Assets
Most
of
our revenue is generated in the United States through our San Diego, California
office, and all of our fixed assets are located in the San Diego, California
office.
Vendors
We
maintain strong relationships with all of our vendors. We are not dependent
upon
any one vendor for our business.
Governmental
Regulation
In
the
United States, fuel and fuel additives are registered and regulated pursuant
to
Section 211 of the Clean Air Act. 40 CFR Part 79 and 80 specifically relates
to
the registration of fuels and fuel additives. Typically, there are registration
and regulation requirements for fuel additives in each country in which they
are
sold. In accordance with the Clean Air Act regulations at 40 CFR 79,
manufacturers (including importers) of gasoline, diesel fuel and additives
for
gasoline or diesel fuel, are required to have their products registered by
the
EPA prior to their introduction into commerce.
However,
EPA registered additives are derived from petroleum while Ethos FR®
is a
reformulator. Even though you “add it” to the fuel, Ethos FR®
is not
derived from petroleum and is non-toxic and non-hazardous and therefore not
subject to governmental regulations. There could be unforeseen future changes
to
the registration requirements under the Clean Air Act and Ethos FR®
may have
to seek registration under such new requirements. In addition, we currently
sell
our product outside of the United States and intend to further expand our sales
efforts internationally. We may need to seek registration in other countries
for
the Ethos FR®
product.
At
this
time the Company is not aware of any present or pending rules or regulations
that would require the Company to seek registration of the Ethos FR®
product
either domestically or internationally.
Research
and Development Costs
Research
and development costs are charged to operations when incurred and are included
in operating expenses. The amounts charged for the years ended December 31,
2006
and 2005 amounted to $112,051 and $132,404, respectively. All of these costs
are
borne by the Company.
Employees
As
of
June 11, 2007, we had 25 full-time and 10 part-time employees.
Property
We
are
located at 6800 Gateway Park Drive, San Diego, CA 92154. We own, approximately
70,000 square feet of industrial space and manufacturing space. We purchased
our
current facility in 2006. It is our belief that the space is more than adequate
for our immediate and future needs. The company is also still obligated to
a
long-term lease at its prior facility. Please see Note 5. “Operating Leases” in
the consolidated Audited financial statements for the year ended December 31,
2006.
Legal
Proceedings
From
time
to time, we are involved in routine legal matters incidental to our business.
In
the opinion of management, the ultimate resolution of such matters will not
have
a material adverse effect on our financial position, results of operations
or
liquidity.
Directors
& Executive Officers
Set
forth
below is certain information concerning each of the directors and executive
officers of the Company as of June 11, 2007:
NAME
|
AGE
|
POSITIONS
|
With
Company Since
|
|
|
|
|
Enrique
de Vilmorin
|
|
President,
CEO, & Director
|
November
1, 2006
|
Luis
Willars
|
|
Director
|
November
1, 2006
|
Jose
Manuel Escobedo
|
|
Secretary
& Director
|
November
1, 2006
|
Thomas
Maher
|
|
CFO
|
December
1, 2007
|
Enrique
de Vilmorin
Mr.
de
Vilmorin has more than 25 years experience in multi-national corporations.
His
areas of expertise include finance, management and manufacturing. His hands-on
approach makes him as comfortable with clients as he is in the warehouse or
in
the boardroom. His background includes work with Intel, IBM, First Union Bank,
and the World Bank Group and a Masters Degree in Economics from the University
of Southern California.
Jose
Manuel Escobedo
Mr.
Escobedo brings to the Company more than 30 years of entrepreneurial experience
and an MBA from IPADE. Mr. Escobedo has owned and managed businesses within
the
oil and fuels industry. He is a director of the Company.
Luis
Willars
Mr.
Willars, an Economist with more than 30 years experience in government and
private sector corporations, adds strong knowledge in corporate finance and
administration. Mr. Willars holds a Masters Degree in Economics from IETSM.
He
is responsible for Ethos Environmental’s worldwide Strategic Planning and
Finance.
Thomas
W. Maher
Mr.
Maher
brings to the company over 20 years of senior financial management experience.
Over this period, he has served as Chief Financial Officer for both privately
held and publicly reporting corporations. Over the past 10 years he has served
as a Chief Financial Officer of a publicly traded international sign
manufacturing company, Luminart Corp., and as a Chief Financial Officer of
a
commercial construction general contracting firm RC Vannatta Inc. Mr. Maher
has
a MBA degree in Finance and Economics from the University of Detroit.
Audit
Committee
The
Company does not presently have an Audit Committee and the full Board acts
in
such capacity for the immediate future due to the limited size of the Board,
which consists of three members.
However,
the Company expects to have an Audit Committee formed prior to June 30,
2007.
Compensation
Committee
The
Company does not have a Compensation Committee and the full Board acts in such
capacity for the immediate future due to the limited size of the Board, which
consists of three members.
Nominating
Committee
The
Company does not have a Nominating Committee and the full Board acts in such
capacity for the immediate future due to the limited size of the Board, which
consists of three members.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Securities Exchange Act of 1934 requires that the Company’s
directors and executive officers and persons who beneficially own more than
ten
percent (10%) of a registered class of its equity securities, file with the
SEC
reports of ownership and changes in ownership of its common stock and other
equity securities. Executive officers, directors, and greater than ten percent
(10%) beneficial owners are required by SEC regulation to furnish the Company
with copies of all Section 16(a) reports that they file. Based solely upon
a
review of the copies of such reports furnished to us or written representations
that no other reports were required, the Company believes that, during 2006
and
during 2007 to date, all filing requirements applicable to its executive
officers, directors, and greater than ten percent (10%) beneficial owners were
met.
Code
of Ethics
We
have
adopted a Code of Ethics and Business Conduct for Officers, Directors and
Employees that applies to all of our officers, directors and
employees.
Executive
Compensation
Summary
Compensation Table
The
following table sets forth the overall compensation earned over each of the
past
two fiscal years ending December 31, 2006 by (1) each person who served as
the
principal executive officer of the Company during fiscal year 2006; (2) the
Company’s most highly compensated executive officers as of December 31, 2006
with compensation during fiscal year 2006 of $100,000 or more; and (3) those
individuals, if any, who would have otherwise been in included in section (2)
above but for the fact that they were not serving as an executive of the Company
as of December 31, 2006.
The
following executive compensation was paid during 2005 or 2006, if
any.
Salary
Compensation
|
|
Name and
Principal
Position
|
|
Fiscal
Year
|
|
Salary ($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Options
Awards
($)(1)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Nonqualified
Deferred
Compensation
Earnings ($)
|
|
All Other
Compensation
Compensation
($) (2)(3)
|
|
Total ($)
|
|
Enrique
de Vilmorin -
CEO
& President
|
|
2006
|
|
$
|
344,325
|
|
$
|
—
|
|
875,000
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
$
|
1,219,325
|
|
|
|
2005
|
|
$
|
--
|
|
$
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
$
|
|
|
Thomas
W. Maher -
CFO
|
|
2006
|
|
$
|
--
|
|
|
--
|
|
--
|
|
|
--
|
|
--
|
|
--
|
|
--
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There
were no stock options granted or exercised by the named executive directors
in
2006.
GRANTS
OF PLAN BASED AWARDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under
Non-Equity
Incentive Plan Awards
|
|
Estimated
Payouts Under
Equity
Incentive Plan Awards
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant
Date
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
Threshold
(#)
|
|
Target
(#)
|
|
Maximum
(#)
|
|
All
Other Stock Awards; Number of Shares of Stock or Units
(#)
|
|
All
Other Option Awards; Number of Securities Underlying Options
(#)
|
|
Exercise
or Base Price of Option Awards
($/Sh)
|
|
Grant
Date Fair Value of Stock and Option Awards
|
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
--
|
-
|
-
|
-
|
-
|
-
|
-
|
|
There
were no other stock based awards under the Stock Incentive Plan in 2006 to
the
Named Executive Officers.
Executive
Officer Outstanding Equity Awards at Fiscal Year-End
The
following table provides certain information concerning any common share
purchase options, stock awards or equity incentive plan awards held by each
of
our named executive officers that were outstanding as of December 31,
2006.
Option Awards
|
|
Stock Awards
|
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options(#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options(#)
Unexercisable
|
|
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
|
Option
Exercise
Price ($)
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
|
|
Equity
Incentive Plan
Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested
|
|
|
Enrique
de Vilmorin
CEO
& President
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Thomas
Maher
CFO
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
Exercises And Stock Vested
There
were no options exercised or stock vested during the year ended December 31,
2006.
Pension
Benefits And Nonqualified Deferred Compensation
The
Company does not maintain any qualified retirement plans or non-nonqualified
deferred compensation plans for its employees or directors.
Employment
Agreements
On
December 4, 2006, Ethos Environmental, Inc. (the “Company”) entered into an
employment agreement (the “Maher Agreement”) with Thomas W. Maher defining the
terms of his employment with the Company as Chief Financial Officer, effective
December 1, 2006 (the “Effective Date”). The initial term of Mr. Maher’s
employment under the Maher Agreement is through December 1, 2007 (unless earlier
terminated in accordance with the terms of the Maher Agreement), with automatic
one-year renewals for each of the successive two years following the Effective
Date.
The
Company has no other written employment agreements with any of its named
executive officers or directors.
DIRECTOR
COMPENSATION
Stock
Options
The
Company does not currently have a fixed stock option plan that provides for
the
issuance of incentive and non-qualified stock options to officers, directors,
employees and non-employees.
Cash
Compensation
Directors
receive no cash compensation for services rendered.
The
following table sets forth certain information with respect to the beneficial
ownership of the Common Stock of the Company as of June 11, 2007, for: (i)
each
person who is known by the Company to beneficially own more than 5 percent
of
the Company’s Common Stock, (ii) each of the Company’s directors, (iii) each of
the Company’s Named Executive Officers, and (iv) all directors and executive
officers as a group. As of June 11, 2007, the Company had 23,809,187 shares
of
Common Stock outstanding.
Name
and Address
of
Beneficial Owner (1)
|
|
Shares
Beneficially Owned
|
|
Percentage
of Shares Beneficially Owned
|
|
Percentage
of Total Voting Power
|
|
Position
|
|
Enrique
de Vilmorin
|
|
|
10,500,000
|
|
|
44%
|
|
|
44%
|
|
|
President,
CEO & Director
|
|
Luis
Willars
|
|
|
0
|
|
|
0%
|
|
|
0%
|
|
|
Director
|
|
Jose
Manuel Escobedo
|
|
|
250,000
|
|
|
1%
|
|
|
1%
|
|
|
Secretary
& Director
|
|
Thomas
Maher
|
|
|
100,000
|
|
|
0%
|
|
|
0%
|
|
|
CFO
|
|
Directors
and Executive Officers as a Group (4 persons)
|
|
|
10,850,000
|
|
|
45%
|
|
|
45%
|
|
|
|
|
(1)
|
Except
where otherwise indicated, the address of the beneficial owner is
deemed
to be the same address as the
Company.
|
Changes
in Control
We
know
of no plans or arrangements that will result in a change of control at our
company.
As
of the
date of this prospectus, other than the transaction described below, there
are
no material agreements or proposed transactions, whether direct or indirect,
with any of the following:
· our
Directors or Executive Officers;
|
· any
nominee for election as a Director;
|
· any
principal security holder identified in the preceding “Security Ownership
of Management and Certain Security Holders” section; or
|
· any
relative or spouse, or relative of such spouse, of the above referenced
persons.
|
During
2006, there was one Loan Payable to the President of the Company in the amount
of $50,000. The loan has no stated repayment terms, is due on demand, is
unsecured and does not bear interest.
Common
Stock
As
of
June 11, 2007, one billion (1,000,000,000) shares of Common Stock, par value
$.0001 per share, are authorized, of which 23,809,187 shares are issued and
outstanding.
All
shares of Ethos Environmental, Inc., Common Stock have equal rights and
privileges with respect to voting, liquidation and dividend rights. Each share
of Common Stock entitles the holder thereof to:
(i)
one
non-cumulative vote for each share held of record on all matters submitted
to a
vote of the stockholders;
(ii)
to
participate equally and to receive any and all such dividends as may be declared
by the Board of Directors out of funds legally available therefore;
and
(iii)
to
participate pro rata in any distribution of assets available for distribution
upon liquidation.
Stockholders
have no preemptive rights to acquire additional shares of Common Stock or any
other securities. Common shares are not subject to redemption and carry no
subscription or conversion rights. All outstanding shares of Common Stock are
fully paid and non-assessable.
Other
Securities
No
warrants, options, or debt securities have been issued as of the date hereof.
No
holder of any class of stock has any preemptive right to subscribe for or
purchase any kind or class of our securities.
Articles
of Incorporation and
By-Laws
Provisions
of our articles of incorporation and bylaws described below, to be determined,
may be deemed to have an anti-takeover effect and may discourage takeover
attempts not first approved by our board of directors, including takeovers
which
certain stockholders may deem to be in their particular best interests. These
provisions also could have the effect of discouraging open market purchases
of
our Common Stock because they may be considered disadvantageous by a stockholder
who desires subsequent to such purchases to participate in a business
combination transaction with us or elect a new director to our
board.
Director
Vacancies and Removal
Our
bylaws provide that vacancies on our board of directors may be filled for the
unexpired portion of the term of the director whose place is vacant by the
affirmative vote of a majority of the remaining directors. Our bylaws may
provide that directors may be removed from office with or without cause by
a
majority vote of shareholders entitled to vote at an election of directors.
Actions
by Written Consent
Our
bylaws provide that any action required or permitted to be taken by our
stockholders or Directors at an annual or special meeting of stockholders or
directors may be effected without a meeting if, before or after the action
taken, a written consent setting forth the action taken is signed by a quorum
of
stockholders or a quorum of directors, as the case may be. Such consent may
be
by proxy or attorney, but all such proxies and powers of attorney must be in
writing.
Special
Meetings of Stockholders
Our
articles of incorporation and bylaws provide that a special meeting of
stockholders may be called at any time by our President, board of directors,
or
a majority thereof. Our bylaws may provide that only those matters included
in
the notice of the special meeting may be considered or acted upon at that
special meeting unless otherwise provided by law.
Advance
Notice of Director Nominations and Stockholder Proposals
Our
bylaws include advance notice and informational requirements and time
limitations on any director nomination or any new proposal which a stockholder
wishes to make at an annual meeting of stockholders.
Amendment
of the Certificate of Incorporation
As
required by Nevada law, certain amendments to our certificate of incorporation
must be approved by a majority of the outstanding shares entitled to vote with
respect to such amendment.
Amendment
of Bylaws
Our
articles of incorporation and bylaws provide that our bylaws may be amended
or
repealed by our board of directors or by the stockholders.
We
had
outstanding 23,809,187 shares of Common Stock as of the date of this prospectus.
All 8,724,788
shares registered pursuant to this prospectus will be freely tradable without
restriction or further registration under the Securities Act of 1933, as amended
(the “Securities Act”). If shares are purchased by our “affiliates” as that term
is defined in Rule 144 under the Securities Act, their sales of shares
would be governed by the limitations and restrictions that are described
below.
In
general, under Rule 144 as currently in effect, a person who has
beneficially owned shares of a company’s common stock for at least one year is
entitled to sell within any three month period a number of shares that does
not
exceed the greater of:
(1) 1%
of the number of shares of our Common Stock then outstanding; or
(2) the
average weekly trading volume of the Company’s Common Stock during the four
calendar weeks preceding the filing of a notice on form 144 with respect to
the
sale.
Sales
under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about the
Company.
Under
Rule 144(k), a person who is not deemed to have been one of our affiliates
at any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, including the
holding period of any prior owner other than an affiliate, is entitled to sell
such shares without complying with the manner of sale, notice filing, volume
limitation or notice provisions of Rule 144.
Future
sales of substantial amounts of our Common Stock in the public market following
the Offering, or the possibility of these sales occurring, could affect
prevailing market prices for our Common Stock or could impair our ability to
raise capital through an offering of equity securities.
SELLING
STOCKHOLDERS
The
following table sets forth information with respect to the maximum number
of
shares of Common Stock beneficially owned by the selling stockholders named
below and as adjusted to give effect to the sale of the shares offered
hereby.
The shares beneficially owned have been determined in accordance with rules
promulgated by the SEC, and the information is not necessarily indicative
of
beneficial ownership for any other purpose. The information in the table
below
is current as of June 11, 2007. All information contained in the table
below is
based upon information provided to us by the selling stockholders and we
have
not independently verified this information. The selling stockholders are
not
making any representation that any shares covered by the prospectus will
be
offered for sale. The selling stockholders may from time to time offer
and sell
pursuant to this prospectus any or all of the Common Stock being registered.
For
purposes of this table, beneficial ownership is determined in accordance
with
SEC rules, and includes voting power and investment power with respect
to
shares. The “Number of Shares Beneficially Owned After Offering” column assumes
the sale of all shares offered.
As
explained below under “Plan of Distribution,” we have agreed with the selling
stockholders to bear certain expenses (other than broker discounts and
commissions, if any) in connection with the Registration Statement, which
includes this prospectus.
The
shares being offered hereby are being registered to permit public secondary
trading, and the selling stockholders may offer all or part of the shares
for
resale from time to time. However, the selling stockholders are under no
obligation to sell all or any portion of such shares nor are the selling
stockholders obligated to sell any shares immediately upon effectiveness
of this
prospectus.
None
of
the selling stockholders has had, within the past three years, any position,
office, or other material relationship with us. None of the selling
stockholders is a member of the National Association of Securities Dealers,
Inc.
or an affiliate of such a member.
Selling
Stockholder (2) (3) (4)
|
|
Number
of Shares Beneficially Owned Prior to Offering
(1)
|
Number
of Common Stock registered in this Offering
|
Number
of Shares Beneficially Owned After Offering
|
DADS
PROJECT LLC
|
|
470,000
|
470,000
|
0
|
ZOE
GROUP INC
|
|
386,275
|
386,275
|
0
|
THE
MEANING OF LIFE CENTER
|
|
377,667
|
377,667
|
0
|
SCOTTTRADE
INC. (3)
|
|
295,600
|
295,600
|
0
|
SUSAN
DE VILMORIN
|
|
250,240
|
250,240
|
0
|
WILBUR
LUSK
|
|
250,000
|
250,000
|
0
|
JARATPONG
(ANDY PORNPRINYA) PORNPRINYA
|
|
250,000
|
250,000
|
0
|
DICK
F CHASE
|
|
205,000
|
205,000
|
0
|
CYNTHIA
M SMITH
|
|
200,000
|
200,000
|
0
|
ROBERT
J WINTERS
|
|
169,000
|
169,000
|
0
|
MARGARET
L JACKSON
|
|
150,000
|
150,000
|
0
|
PAUL
J RANGEL
|
|
44,000
|
44,000
|
0
|
RICHARD
R NORMAND JR
|
|
132,250
|
132,250
|
0
|
NATIONAL
FINANCIAL SERVICES LLC (3)
|
|
130,500
|
130,500
|
0
|
SHUVA
YISRAEL
|
|
122,285
|
122,285
|
0
|
INTERNATIONAL
GLOBAL OUTREACH
|
|
122,136
|
122,136
|
0
|
YASMINE
E RANGEL
|
|
16,000
|
16,000
|
0
|
ANDREW
G CHASE
|
|
105,000
|
105,000
|
0
|
NEIL
R MOHR
|
|
100,000
|
100,000
|
0
|
FIRST
CLEARING LLC (3)
|
|
98,360
|
98,360
|
0
|
HANS
HARTJENS
|
|
95,400
|
95,400
|
0
|
MARK
N CHASE
|
|
95,000
|
95,000
|
0
|
SCOTT
T CHASE
|
|
95,000
|
95,000
|
0
|
JAMES
R RICHARDS
|
|
85,450
|
85,450
|
0
|
THOMAS
B ISRAEL & ELIZABETH A ISRAEL
|
|
85,000
|
85,000
|
0
|
STEVE
MIESEN & MARY E MIESEN
|
|
83,750
|
83,750
|
0
|
WILLIAM
SAWAYA & RANDA SAWAYA
|
|
83,750
|
83,750
|
0
|
JERRY
A SCHNITZIUS & PHYLLIS A SCHNITZIUS
|
|
75,000
|
75,000
|
0
|
COUNTRY
QUALITY HOMES LLC
|
|
68,250
|
68,250
|
0
|
BRUCE
HALVAX & MONICA HALVAX LIMITED PARTNERSHIP
|
|
62,500
|
62,500
|
0
|
EXOUSIA
MINISTRIES INC
|
|
60,500
|
60,500
|
0
|
KARIM
AL LOHAIDAN
|
|
60,000
|
60,000
|
0
|
JEREMY
CARSON
|
|
60,000
|
60,000
|
0
|
PENSON
FINANCIAL SERVICES INC (3)
|
|
60,000
|
60,000
|
0
|
MARK
A WIMBERLY
|
|
60,000
|
60,000
|
0
|
DONALD
E SEARS
|
|
59,875
|
59,875
|
0
|
DON
JUSTICE
|
|
57,571
|
57,571
|
0
|
EDWARD
A CHUNGLO TTEE THE EDWARD A CHUNGLO REVOCABLE TRUST DTD
4-15-05
|
|
57,000
|
57,000
|
0
|
RBC
DOMINION SECURITIES INC (3)
|
|
55,000
|
55,000
|
0
|
JOHN
KING HOWELL III
|
|
54,285
|
54,285
|
0
|
ROBERT
AMBROSO
|
|
52,400
|
52,400
|
0
|
RED
ROCK DIVERSIFIED LLC
|
|
50,000
|
50,000
|
0
|
WILLIAM
R SCHANTZ
|
|
47,000
|
47,000
|
0
|
EOIN
B GILLER
|
|
45,956
|
45,956
|
0
|
JEANETTE
L TANSKI
|
|
45,000
|
45,000
|
0
|
PATRICK
GLENNON
|
|
44,000
|
44,000
|
0
|
BRIAN
C INMAN
|
|
40,400
|
40,400
|
0
|
MCBRIDE
MUSICAL MINISTRIES
|
|
40,000
|
40,000
|
0
|
EDWARD
JONES
|
|
39,750
|
39,750
|
0
|
INDER
BAGAI
|
|
39,665
|
39,665
|
0
|
REBEKAH
GLENNON
|
|
39,600
|
39,600
|
0
|
KARLENE
SOEHN
|
|
38,000
|
38,000
|
0
|
JAMES
T AMBROSO & KELLI AMBROSO JT TEN
|
|
35,000
|
35,000
|
0
|
JOAN
P SMITH TTEE OF THE JOAN P SMITH REVOCABLE LIVING TRUST DTD
12/7/1998
|
|
35,000
|
35,000
|
0
|
KELTIC
MARINERS FELLOWSHIP
|
|
34,513
|
34,513
|
0
|
JOEL
SAUCEDA
|
|
34,000
|
34,000
|
0
|
PEARSON
1991 REVOCABLE LIVING TRUST
|
|
33,000
|
33,000
|
0
|
VITO
SANTORO & ELLEN SANTORO
|
|
33,000
|
33,000
|
0
|
MORGAN
STANLEY DW INC (3)
|
|
31,050
|
31,050
|
0
|
EAGLE
CREST UNLIMITED
|
|
30,700
|
30,700
|
0
|
DICK
F CHASE JR
|
|
30,000
|
30,000
|
0
|
GARY
L SHEPPARD
|
|
30,000
|
30,000
|
0
|
VINCENT
J TREOLA JR
|
|
30,000
|
30,000
|
0
|
LORRAINE
WINTERS
|
|
30,000
|
30,000
|
0
|
ROSA
RANGEL
|
|
28,000
|
28,000
|
0
|
PRESTON
A SCOTT
|
|
27,500
|
27,500
|
0
|
FRANK
K DONATELLI
|
|
26,000
|
26,000
|
0
|
JAMES
F MUSTOE
|
|
25,380
|
25,380
|
0
|
KELLI
AMBROSO
|
|
25,000
|
25,000
|
0
|
MOHAN
BARAICH
|
|
25,000
|
25,000
|
0
|
SOHAN
BARAICH & SARVJIT BARAICH
|
|
25,000
|
25,000
|
0
|
KULWANT
GILL & KULDIP GILL
|
|
25,000
|
25,000
|
0
|
MICHAEL
MANSFIELD
|
|
25,000
|
25,000
|
0
|
KEITH
S ROBINSON
|
|
25,000
|
25,000
|
0
|
TARA
SINGH
|
|
25,000
|
25,000
|
0
|
SUZANNE
L TOMPKINS
|
|
25,000
|
25,000
|
0
|
TUAN
NGUYEN
|
|
24,300
|
24,300
|
0
|
ALDA
FE V LIBBY
|
|
24,000
|
24,000
|
0
|
SARAH
J RANGEL
|
|
24,000
|
24,000
|
0
|
JOEL
A WOLENSKY & YOLANDA A WOLENSKY
|
|
23,000
|
23,000
|
0
|
KPK
OPTIONS UNLIMITED LLC
|
|
22,000
|
22,000
|
0
|
HARVEY
M LIFSEY
|
|
22,000
|
22,000
|
0
|
JAMISON
GLENNON
|
|
21,600
|
21,600
|
0
|
WILLIAM
D GREENMAN
|
|
20,700
|
20,700
|
0
|
GEORGE
BELL & KATHERINE BELL
|
|
20,000
|
20,000
|
0
|
ROBERT
L BOLAND
|
|
20,000
|
20,000
|
0
|
GENESIS
GLASS & MIRROR INC
|
|
20,000
|
20,000
|
0
|
GREG
A HOLMAN
|
|
20,000
|
20,000
|
0
|
ROBERT
G MALLERY
|
|
20,000
|
20,000
|
0
|
JOHN
QUINN
|
|
20,000
|
20,000
|
0
|
SCHMIDT
FAMILY TRUST U/D/T 3-25-98
|
|
20,000
|
20,000
|
0
|
REBECCA
SPRINGSGUTH & CODY SPRINGSGUTH
|
|
20,000
|
20,000
|
0
|
OSHEENA
E TAYAL
|
|
20,000
|
20,000
|
0
|
TONY
J DE PAOLI & LENNI K DE PAOLI JTWROS
|
|
19,500
|
19,500
|
0
|
IJEN
CHANG
|
|
18,900
|
18,900
|
0
|
HARJINDER
BRAICH
|
|
18,750
|
18,750
|
0
|
JOSEPH
MARTIN FALASCO
|
|
18,708
|
18,708
|
0
|
MIGUEL
GALLIMORE
|
|
18,409
|
18,409
|
0
|
UNIVERSAL
FREIGHT HANDLERS LTD
|
|
18,409
|
18,409
|
0
|
MARYBETH
BARRETT
|
|
18,000
|
18,000
|
0
|
GIL
KAPLAN & BRENDA KAPLAN
|
|
17,500
|
17,500
|
0
|
TERESA
H KOLL
|
|
17,500
|
17,500
|
0
|
THOMAS
E UTTERBACK
|
|
17,500
|
17,500
|
0
|
SINGULAR
ENTERPRISES LLC
|
|
16,667
|
16,667
|
0
|
MARY
BIENKOWSKI
|
|
15,525
|
15,525
|
0
|
ADLER
FAMILY PARTNERS
|
|
15,000
|
15,000
|
0
|
RONALD
W BANNISTER & ROBERTA J BANNISTER
|
|
15,000
|
15,000
|
0
|
STEVE
LEE
|
|
15,000
|
15,000
|
0
|
ESTELLE
MCADAMS
|
|
15,000
|
15,000
|
0
|
STEVEN
G OSCHMANN
|
|
15,000
|
15,000
|
0
|
JAMES
PLAGINOS
|
|
14,500
|
14,500
|
0
|
SHARON
L KEHLER
|
|
13,750
|
13,750
|
0
|
TONY
HERRERA
|
|
13,500
|
13,500
|
0
|
RICHARD
H HILL & OANH N HILL
|
|
13,500
|
13,500
|
0
|
DAVID
NGUYEN
|
|
13,500
|
13,500
|
0
|
GEORGE
NUA & CAROL NUA
|
|
13,500
|
13,500
|
0
|
CYNDI'S
FIVE STAR MASSAGE THERAPIES
|
|
12,500
|
12,500
|
0
|
PETER
J DEMOLDER
|
|
12,500
|
12,500
|
0
|
GUNDYCO
|
|
12,500
|
12,500
|
0
|
ROBERT
HUTZLER
|
|
12,500
|
12,500
|
0
|
DALE
KLINGENSMITH & DIANE KLINGENSMITH
|
|
12,500
|
12,500
|
0
|
PRESTON
SCOTT & SUSAN SCOTT
|
|
12,500
|
12,500
|
0
|
TAX
FREE STRATEGIES LLC FBO WESLEY BREWER
|
|
12,500
|
12,500
|
0
|
NAVALJEET
WARAICH & AMARJIT WARAICH
|
|
12,500
|
12,500
|
0
|
MARCELLA
ROSE DONATELLI
|
|
12,000
|
12,000
|
0
|
MARY
ALEXANDRA DONATELLI
|
|
12,000
|
12,000
|
0
|
FRANK
K DONATELLI JR
|
|
12,000
|
12,000
|
0
|
THOMAS
B HAZARD
|
|
12,000
|
12,000
|
0
|
MIKE
MATHIAS & NAOMI H MATHIAS
|
|
12,000
|
12,000
|
0
|
JAMES
H TAYLOR
|
|
12,000
|
12,000
|
0
|
DOMENIC
J COLLELUORI JR
|
|
11,600
|
11,600
|
0
|
DONALD
MARK JUSTICE
|
|
11,428
|
11,428
|
0
|
KENNETH
D VAUGHN & ANDREA M VAUGHN JT WROS
|
|
11,250
|
11,250
|
0
|
CHARLES
E HAYES
|
|
11,068
|
11,068
|
0
|
ASKANDERBEG
TRUST
|
|
11,000
|
11,000
|
0
|
MICHAL
LUSK
|
|
11,000
|
11,000
|
0
|
JASPER
PEAK LLC
|
|
10,125
|
10,125
|
0
|
DAN
ADKINSON
|
|
10,000
|
10,000
|
0
|
ROBERT
S ANTHONY
|
|
10,000
|
10,000
|
0
|
NANCY
ASIDO
|
|
10,000
|
10,000
|
0
|
DAN
ATKINSON
|
|
10,000
|
10,000
|
0
|
TIMMY
BELL & JANE BELL
|
|
10,000
|
10,000
|
0
|
BENJAMIN
J BOSS & AMY J BOSS JTWROS
|
|
10,000
|
10,000
|
0
|
BROOKSIDE
MANAGEMENT GROUP INC
|
|
10,000
|
10,000
|
0
|
JOSEPH
BUSCAGLIO
|
|
10,000
|
10,000
|
0
|
DONALD
LEWIS CORN JR
|
|
10,000
|
10,000
|
0
|
VOLKER
DEMPLE & SUSANN DEMPLE
|
|
10,000
|
10,000
|
0
|
HAROLD
DIAZ
|
|
10,000
|
10,000
|
0
|
JAMISON
J GLENNON
|
|
10,000
|
10,000
|
0
|
ERIC
L HOLMAN
|
|
10,000
|
10,000
|
0
|
BENJAMIN
JONES
|
|
10,000
|
10,000
|
0
|
SUSAN
KERTSCHER
|
|
10,000
|
10,000
|
0
|
DAVID
M LUSK
|
|
10,000
|
10,000
|
0
|
KENDALL
LUSK
|
|
10,000
|
10,000
|
0
|
SCOTT
D MCCLURE
|
|
10,000
|
10,000
|
0
|
JOHN
MUSTIAN
|
|
10,000
|
10,000
|
0
|
CHARLES
W OSCHMANN
|
|
10,000
|
10,000
|
0
|
JACK
OTTERSON
|
|
10,000
|
10,000
|
0
|
JERRY
A SCHNITZIUS
|
|
10,000
|
10,000
|
0
|
ROBERT
SHORT & ROSA SHORT
|
|
10,000
|
10,000
|
0
|
MIKE
SPENCER
|
|
10,000
|
10,000
|
0
|
TIM
THOMPSON & KARI THOMPSON
|
|
10,000
|
10,000
|
0
|
ILUMINADA
A TORRICES
|
|
10,000
|
10,000
|
0
|
TONI
TREOLA
|
|
10,000
|
10,000
|
0
|
USA
E LLC
|
|
10,000
|
10,000
|
0
|
RENATO
C YANGA & NELIA B YANGA JT TEN
|
|
10,000
|
10,000
|
0
|
XL
INC
|
|
9,800
|
9,800
|
0
|
MARTY
R DE PAOLI
|
|
9,750
|
9,750
|
0
|
BRAD
HARRIS
|
|
9,500
|
9,500
|
0
|
THEODORE
C HERRERA
|
|
9,500
|
9,500
|
0
|
CARL
GARITSON & PATRICIA GARITSON
|
|
9,222
|
9,222
|
0
|
MARIO
SALERNO
|
|
9,100
|
9,100
|
0
|
STEPHEN
CHUNGLO & ANGELA CHUNGLO
|
|
9,000
|
9,000
|
0
|
DELANO
HADARLY & MELANIE HADARLY
|
|
9,000
|
9,000
|
0
|
DEBORAH
AMBROSO
|
|
8,750
|
8,750
|
0
|
ROBERT
WALDROP
|
|
8,334
|
8,334
|
0
|
RONALD
H SCHNITZIUS
|
|
8,250
|
8,250
|
0
|
RICHARD
CAHILL
|
|
8,000
|
8,000
|
0
|
GREGORY
COX
|
|
8,000
|
8,000
|
0
|
ALAN
M DEITCH & MICHELLE DEITCH
|
|
8,000
|
8,000
|
0
|
JON
THOMPSON
|
|
8,000
|
8,000
|
0
|
PERSHING
LLC
|
|
7,600
|
7,600
|
0
|
THE
AMBROSO/GILDEN IRREVOCABLE SPECIAL NEEDS TRUST
|
|
7,500
|
7,500
|
0
|
DAVID
BOWEN & CINDY BOWEN
|
|
7,500
|
7,500
|
0
|
CAPE
BRETON ISLAND SOCIETY
|
|
7,500
|
7,500
|
0
|
DARYL
D FRANCE & LYNN M FRANCE
|
|
7,500
|
7,500
|
0
|
STAN
GILDEN & KATHY GILDEN
|
|
7,500
|
7,500
|
0
|
JAISON
KLINGENSMITH & BETH KLINGENSMITH
|
|
7,500
|
7,500
|
0
|
RICHARD
C MEALEY JR
|
|
7,500
|
7,500
|
0
|
GEORGE
MOHR
|
|
7,500
|
7,500
|
0
|
HEIL
RICKETTS
|
|
7,500
|
7,500
|
0
|
WELLS
FARGO INVESTMENTS LLC (3)
|
|
7,500
|
7,500
|
0
|
KENNETH
J WINTERS
|
|
7,400
|
7,400
|
0
|
DAVID
HAYS & GLORIA HAYS
|
|
7,000
|
7,000
|
0
|
MICHAEL
KILLEBREW
|
|
7,000
|
7,000
|
0
|
RICHARD
J KRAEMER & REBECCA M KRAEMER
|
|
7,000
|
7,000
|
0
|
RICHARD
J KRAEMER & REBECCA M KRAEMER
|
|
7,000
|
7,000
|
0
|
AURELIUS
CONSULTING GROUP INC (4)
|
|
6,750
|
6,750
|
0
|
MALCOLM
PETERS
|
|
6,600
|
6,600
|
0
|
SCOTT
BERTONI & ERIN BERTONI
|
|
6,480
|
6,480
|
0
|
DAVID
HERZOG & STEPHANIE HERZOG
|
|
6,222
|
6,222
|
0
|
NATIONAL
INVESTOR SERVICES (3)
|
|
6,050
|
6,050
|
0
|
MARK
AMBROSO
|
|
6,000
|
6,000
|
0
|
GERMAN
FERNANDEZ
|
|
6,000
|
6,000
|
0
|
CAROLYN
A IVERSEN
|
|
6,000
|
6,000
|
0
|
CONNIE
MOSS
|
|
6,000
|
6,000
|
0
|
JEFFREY
MOYERS
|
|
6,000
|
6,000
|
0
|
PEGGY
PANGBURN
|
|
6,000
|
6,000
|
0
|
ALAN
RIDLEY
|
|
6,000
|
6,000
|
0
|
ADAM
RUBENSTEIN
|
|
6,000
|
6,000
|
0
|
ANTHONY
SALERNO
|
|
6,000
|
6,000
|
0
|
BALBIR
SUBH & KATRINA SUBH
|
|
6,000
|
6,000
|
0
|
MONICA
WREN
|
|
6,000
|
6,000
|
0
|
SHALOM
MINISTRIES
|
|
5,965
|
5,965
|
0
|
GOODWILL
PHILANTHROPIC SOCIETY
|
|
5,875
|
5,875
|
0
|
MICHAEL
VELIE & DIANA VELIE
|
|
5,760
|
5,760
|
0
|
DAVID
J GARLAND
|
|
5,500
|
5,500
|
0
|
DEBORAH
THOMAS
|
|
5,400
|
5,400
|
0
|
JOSEPH
M FALASCO
|
|
5,370
|
5,370
|
0
|
BRIAN
CARTER
|
|
5,062
|
5,062
|
0
|
JILL
ADLER
|
|
5,000
|
5,000
|
0
|
MATTHEW
AMBROSO
|
|
5,000
|
5,000
|
0
|
MELYNDA
AMBROSO
|
|
5,000
|
5,000
|
0
|
MICHAEL
AMBROSO
|
|
5,000
|
5,000
|
0
|
AMERICA
PRESENTS MINISTRIES
|
|
5,000
|
5,000
|
0
|
BRIAN
GRANT BEARD
|
|
5,000
|
5,000
|
0
|
JOHN
R BOSS & JULIE P BOSS
|
|
5,000
|
5,000
|
0
|
NICHOLAS
J BOSS
|
|
5,000
|
5,000
|
0
|
WESLEY
BREWER & MAUREEN BREWER
|
|
5,000
|
5,000
|
0
|
JEFFREY
S BROWN & KELLIE R BROWN
|
|
5,000
|
5,000
|
0
|
DANIEL
J BUEHRENS
|
|
5,000
|
5,000
|
0
|
CIRILO
CALINGO
|
|
5,000
|
5,000
|
0
|
COTTONWOOD
FINANCIAL LLC (3)
|
|
5,000
|
5,000
|
0
|
CTW
FINANCIAL GROUP INC (3)
|
|
5,000
|
5,000
|
0
|
PETER
HAROLDSON & MARGARET HAROLDSON
|
|
5,000
|
5,000
|
0
|
INTELLIGENCE
GROUP INTERNATIONAL
|
|
5,000
|
5,000
|
0
|
IWKJBL
ENTERPRISES LLC
|
|
5,000
|
5,000
|
0
|
CRAIG
JENSEN
|
|
5,000
|
5,000
|
0
|
DENNIS
KNIGHT & SHANNON L KNIGHT
|
|
5,000
|
5,000
|
0
|
DEBBIE
LOPEZ
|
|
5,000
|
5,000
|
0
|
ROBERT
MAUGHAN & LAURI MAUGHAN
|
|
5,000
|
5,000
|
0
|
TIM
W MURPHY
|
|
5,000
|
5,000
|
0
|
DAVID
NARANJO JR & DIANE LYNN NARANJO
|
|
5,000
|
5,000
|
0
|
ERNEST
C NICHOLS III
|
|
5,000
|
5,000
|
0
|
DEBORAH
J PEDRON
|
|
5,000
|
5,000
|
0
|
JEFF
PERYSIAN
|
|
5,000
|
5,000
|
0
|
SHEILA
Q PITTS TTEE SHEILA Q PITTS FAMILY TRUST UAD 7-15-96
|
|
5,000
|
5,000
|
0
|
GREG
RIVERA
|
|
5,000
|
5,000
|
0
|
ANDREA
SANTACRUZ
|
|
5,000
|
5,000
|
0
|
CRAIG
STOLLER
|
|
5,000
|
5,000
|
0
|
TODD
STOLLER
|
|
5,000
|
5,000
|
0
|
GERALD
D STRANG
|
|
5,000
|
5,000
|
0
|
WALTER
SWANCY
|
|
5,000
|
5,000
|
0
|
DERRICK
TADLOCK
|
|
5,000
|
5,000
|
0
|
WEDBUSH
MORGAN SECURITIES (3)
|
|
5,000
|
5,000
|
0
|
FRANK
ZEBELL & KASS ZEBELL
|
|
5,000
|
5,000
|
0
|
JEFFREY
W HARRIS
|
|
4,500
|
4,500
|
0
|
ROBERT
C HERRERA & DONNIA HERRERA
|
|
4,500
|
4,500
|
0
|
THOMAS
T HERRERA & MARCELLE R HERRERA TEN COM
|
|
4,500
|
4,500
|
0
|
YEN
NGUYEN
|
|
4,500
|
4,500
|
0
|
MICHAEL
SCOTT
|
|
4,500
|
4,500
|
0
|
4E
CORPORATE SERVICES
|
|
4,000
|
4,000
|
0
|
BARBARA
BOYD
|
|
4,000
|
4,000
|
0
|
M
PATRICIA CAHILL
|
|
4,000
|
4,000
|
0
|
IRENE
ELIAS
|
|
4,000
|
4,000
|
0
|
DAVID
I HAYS & GLORIA J HAYS
|
|
4,000
|
4,000
|
0
|
NIR
LEIBOVICH
|
|
4,000
|
4,000
|
0
|
BENJY
MACNAUGHTON & JESICA MACNAUGHTON
|
|
4,000
|
4,000
|
0
|
SHONNA
D NOTEBOOM
|
|
4,000
|
4,000
|
0
|
PETER
A PITCHER
|
|
4,000
|
4,000
|
0
|
JAMES
WINTERS & WILMA WINTERS
|
|
4,000
|
4,000
|
0
|
KURT
GRAF
|
|
3,750
|
3,750
|
0
|
DAVID
HUBER
|
|
3,750
|
3,750
|
0
|
DAVID
B HUBER
|
|
3,750
|
3,750
|
0
|
KENNETH
SIFFRAR & KAREN SIFFRAR
|
|
3,750
|
3,750
|
0
|
DAN
MOSS
|
|
3,666
|
3,666
|
0
|
JUAN
PERSAUD
|
|
3,600
|
3,600
|
0
|
JON
C UTTERBACK
|
|
3,400
|
3,400
|
0
|
DEFAYNE
A SMITH
|
|
3,250
|
3,250
|
0
|
SUSAN
SCOTT
|
|
3,200
|
3,200
|
0
|
SNEHLATA
BAGAI
|
|
3,077
|
3,077
|
0
|
MARK
GREER & JENNIFER GREER
|
|
3,025
|
3,025
|
0
|
SOPHIE
ANN M AOKI
|
|
3,000
|
3,000
|
0
|
ELISABETH
BJORKLUND
|
|
3,000
|
3,000
|
0
|
DEBORAH
CAMPBELL
|
|
3,000
|
3,000
|
0
|
EDWARD
D FICKESS
|
|
3,000
|
3,000
|
0
|
JOHN
GREENMAN
|
|
3,000
|
3,000
|
0
|
SHANE
DEE SCHRUM
|
|
3,000
|
3,000
|
0
|
THOMAS
G UTTERBACK
|
|
3,000
|
3,000
|
0
|
CARLOS
FAJARDO
|
|
2,700
|
2,700
|
0
|
SAM
ROTMAN
|
|
2,700
|
2,700
|
0
|
WAYNE
BARR
|
|
2,565
|
2,565
|
0
|
THOMAS
BROWN & KATHY BROWN
|
|
2,500
|
2,500
|
0
|
WILLIAM
K BUCK & ROBBIE BUCK
|
|
2,500
|
2,500
|
0
|
MARTY
GOETZ & JENNIFER GOETZ
|
|
2,500
|
2,500
|
0
|
JOAN
CATHERINE HALL
|
|
2,500
|
2,500
|
0
|
FRED
D HAYS II
|
|
2,500
|
2,500
|
0
|
RACHEL
HEINE
|
|
2,500
|
2,500
|
0
|
DON
KOVELESKI & CHRISTINE KOVELESKI
|
|
2,500
|
2,500
|
0
|
MERRILL
LYNCH PIERCE FENNER & SMITH INCORPORATED (3)
|
|
2,500
|
2,500
|
0
|
LOUIS
P PATIERNO
|
|
2,500
|
2,500
|
0
|
DELIA
PRICE
|
|
2,500
|
2,500
|
0
|
MICHAEL
ROBISON & LINDA ROBISON
|
|
2,500
|
2,500
|
0
|
MICHAEL
A ROBISON
|
|
2,500
|
2,500
|
0
|
HAROLD
A ROSEWALL
|
|
2,500
|
2,500
|
0
|
RONALD
STANLEY
|
|
2,500
|
2,500
|
0
|
MICHAEL
STOUT
|
|
2,500
|
2,500
|
0
|
WALLACE
THOMPSON
|
|
2,500
|
2,500
|
0
|
BRYAN
R WHITE
|
|
2,500
|
2,500
|
0
|
RICHARD
B YEAKEL
|
|
2,500
|
2,500
|
0
|
PD
GOODWILL ADMINISTRATOR GOODWILL PHILANTHROPIC SOCIETY
|
|
2,400
|
2,400
|
0
|
KEN
MCADAMS
|
|
2,200
|
2,200
|
0
|
TIMOTHY
MCFARLAND
|
|
2,200
|
2,200
|
0
|
CHERYL
CONGROVE
|
|
2,100
|
2,100
|
0
|
RICARDO
H RANGEL
|
|
2,013
|
2,013
|
0
|
THE
ACTS GROUP INTERNATIONAL
|
|
2,000
|
2,000
|
0
|
KENNETH
ADLER C/F ALEXANDRIA ADLER UTMA TN
|
|
2,000
|
2,000
|
0
|
JOHN
AMBROSO & THERESA AMBROSO
|
|
2,000
|
2,000
|
0
|
VARTAN
AROYAN
|
|
2,000
|
2,000
|
0
|
RAJESH
BHATIA
|
|
2,000
|
2,000
|
0
|
DAVID
BOYD
|
|
2,000
|
2,000
|
0
|
BRIAN
D BUCK
|
|
2,000
|
2,000
|
0
|
DARRELL
G BUCK
|
|
2,000
|
2,000
|
0
|
ARTHUR
A CANTU
|
|
2,000
|
2,000
|
0
|
HUBERT
CARTER
|
|
2,000
|
2,000
|
0
|
JOHN
DAL PEZZO
|
|
2,000
|
2,000
|
0
|
RANDY
DALY
|
|
2,000
|
2,000
|
0
|
SUSINIA
DIAZ
|
|
2,000
|
2,000
|
0
|
INGRID
DIERKS
|
|
2,000
|
2,000
|
0
|
FRED
ESPINOZA
|
|
2,000
|
2,000
|
0
|
DAVE
FAZIO
|
|
2,000
|
2,000
|
0
|
MICHAEL
S FICKESS
|
|
2,000
|
2,000
|
0
|
BENJAMIN
GUERRERO & MARTHA GUERRERO
|
|
2,000
|
2,000
|
0
|
VIRGINIA
HRUZA
|
|
2,000
|
2,000
|
0
|
IYSEAS
B LEA
|
|
2,000
|
2,000
|
0
|
TIMOTHY
MARQUART & LINDA MARQUART
|
|
2,000
|
2,000
|
0
|
ELIZABETH
A MEYER
|
|
2,000
|
2,000
|
0
|
MARK
H MILOCK
|
|
2,000
|
2,000
|
0
|
CROSS
MOCERI & DOROTHY MOCERI
|
|
2,000
|
2,000
|
0
|
JOHN
F PARKER & LYNN R PARKER
|
|
2,000
|
2,000
|
0
|
VICTOR
J PAUL
|
|
2,000
|
2,000
|
0
|
ROGER
L RICKER TTEE ROGER L RICKER TR REV DTD 10/26/99
|
|
2,000
|
2,000
|
0
|
CARRIE
A SCHANTZ
|
|
2,000
|
2,000
|
0
|
MIRIAM
I SCHANTZ
|
|
2,000
|
2,000
|
0
|
STEVEN
SEYBOLD
|
|
2,000
|
2,000
|
0
|
KATHI
SHORT
|
|
2,000
|
2,000
|
0
|
PATRICIA
J STAERKER
|
|
2,000
|
2,000
|
0
|
CINDY
J STEGLE
|
|
2,000
|
2,000
|
0
|
GARY
STUELAND
|
|
2,000
|
2,000
|
0
|
RANDAL
L STUMP
|
|
2,000
|
2,000
|
0
|
SANDRA
E TAYLOR
|
|
2,000
|
2,000
|
0
|
LANORA
VANARSDALL
|
|
2,000
|
2,000
|
0
|
PAUL
H WEIBLING
|
|
2,000
|
2,000
|
0
|
JOEL
WOLENSKY & YOLANDA WOLENSKY
|
|
2,000
|
2,000
|
0
|
OANH
N HILL
|
|
1,800
|
1,800
|
0
|
PATRICIA
A JONES
|
|
1,800
|
1,800
|
0
|
JOE
KRELIC SR
|
|
1,800
|
1,800
|
0
|
MARY
E METZGER
|
|
1,800
|
1,800
|
0
|
ANJELINA
C MORE
|
|
1,800
|
1,800
|
0
|
SETAITA
K OLIVE
|
|
1,800
|
1,800
|
0
|
SHARON
M SIEMERS
|
|
1,800
|
1,800
|
0
|
EVELYN
CAMPBELL
|
|
1,700
|
1,700
|
0
|
ROBERT
A BOYD
|
|
1,500
|
1,500
|
0
|
LESLIE
GRIDER
|
|
1,500
|
1,500
|
0
|
RALPH
GRIDER
|
|
1,500
|
1,500
|
0
|
THERESA
KOLL
|
|
1,500
|
1,500
|
0
|
DIANA
LIMBACH
|
|
1,500
|
1,500
|
0
|
PHILIP
MARQUIS
|
|
1,500
|
1,500
|
0
|
NIKI
PARKS
|
|
1,500
|
1,500
|
0
|
NIKI
PARKS
|
|
1,500
|
1,500
|
0
|
KENNETH
E PINK
|
|
1,500
|
1,500
|
0
|
CHARMAINE
J PYTELL
|
|
1,500
|
1,500
|
0
|
ANNA
SANTORO
|
|
1,500
|
1,500
|
0
|
NATALIE
MICHELLE SANTORO
|
|
1,500
|
1,500
|
0
|
VINCENT
MARK SANTORO
|
|
1,500
|
1,500
|
0
|
JAMES
J SULLIVAN
|
|
1,500
|
1,500
|
0
|
ANDREA
WOODAHL
|
|
1,500
|
1,500
|
0
|
MARITIE
WELLBROCK
|
|
1,260
|
1,260
|
0
|
DAWN
MATHIAS
|
|
1,250
|
1,250
|
0
|
MELINDA
PEKRUL
|
|
1,250
|
1,250
|
0
|
MICHAEL
C PEKRUL & MISTY ERIN PEKRUL JT TEN
|
|
1,250
|
1,250
|
0
|
TRISHA
M PEKRUL
|
|
1,250
|
1,250
|
0
|
MERTON
W PEKRUL JR & KRISTIANA PEKRUL JT TEN
|
|
1,250
|
1,250
|
0
|
STEPHEN
REED
|
|
1,200
|
1,200
|
0
|
VICKIE
REED
|
|
1,200
|
1,200
|
0
|
EVELYN
KOMUNTALE
|
|
1,160
|
1,160
|
0
|
AMBER
NAVARRETTE
|
|
1,050
|
1,050
|
0
|
CELIA
TOLEDANO
|
|
1,013
|
1,013
|
0
|
KATHRYN
ROWOLDT
|
|
1,007
|
1,007
|
0
|
ADAM
N BIRD
|
|
1,000
|
1,000
|
0
|
DONNY
CALUCAG
|
|
1,000
|
1,000
|
0
|
AARON
CARSON
|
|
1,000
|
1,000
|
0
|
FRANK
CONDRAY
|
|
1,000
|
1,000
|
0
|
MIKE
DENNIS
|
|
1,000
|
1,000
|
0
|
DEBORAH
A FICKESS
|
|
1,000
|
1,000
|
0
|
LAURA
J FICKESS
|
|
1,000
|
1,000
|
0
|
STEPHEN
L FICKESS
|
|
1,000
|
1,000
|
0
|
HAROLD
J GALLAGHER
|
|
1,000
|
1,000
|
0
|
JAMES
GARITSON
|
|
1,000
|
1,000
|
0
|
JOSEPH
D GIRON
|
|
1,000
|
1,000
|
0
|
GREGORY
P HALLSTEAD
|
|
1,000
|
1,000
|
0
|
HOLLY
A HINE
|
|
1,000
|
1,000
|
0
|
MICAH
W HINE
|
|
1,000
|
1,000
|
0
|
EMILY
L HOLMAN
|
|
1,000
|
1,000
|
0
|
LAUREN
M HOLMAN
|
|
1,000
|
1,000
|
0
|
DONALD
W HORNER
|
|
1,000
|
1,000
|
0
|
ELEANOR
L IADONISI
|
|
1,000
|
1,000
|
0
|
KATHLEEN
M KARCZEWSKI
|
|
1,000
|
1,000
|
0
|
ELIZABETH
KRONMULLER
|
|
1,000
|
1,000
|
0
|
NATHAN
LAWSON
|
|
1,000
|
1,000
|
0
|
ANNE
MARSHALL
|
|
1,000
|
1,000
|
0
|
ETHAN
MARSHALL
|
|
1,000
|
1,000
|
0
|
JOANNE
L MEYER
|
|
1,000
|
1,000
|
0
|
MARK
MILOCK
|
|
1,000
|
1,000
|
0
|
BRANDON
NIIZAWA
|
|
1,000
|
1,000
|
0
|
CELIA
PARKS
|
|
1,000
|
1,000
|
0
|
TAYLOR
PRICE
|
|
1,000
|
1,000
|
0
|
MARCIA
QUINN
|
|
1,000
|
1,000
|
0
|
REBECCA
QUINN
|
|
1,000
|
1,000
|
0
|
KELLI
RAYZOR
|
|
1,000
|
1,000
|
0
|
KELLI
RAZOR
|
|
1,000
|
1,000
|
0
|
DAVID
SANCHEZ
|
|
1,000
|
1,000
|
0
|
RICHARD
F SCHANTZ & BETTY JANE SCHANTZ
|
|
1,000
|
1,000
|
0
|
MATHEW
J SCHNITZIUS
|
|
1,000
|
1,000
|
0
|
LISA
M SILVER
|
|
1,000
|
1,000
|
0
|
DAVID
J SULLIVAN
|
|
1,000
|
1,000
|
0
|
ANN
L WHEELER
|
|
1,000
|
1,000
|
0
|
ELIZABETH
A WOLENSKY
|
|
1,000
|
1,000
|
0
|
JOSEPH
WOLENSKY
|
|
1,000
|
1,000
|
0
|
KENNETH
JONES & CAROLINE JONES
|
|
900
|
900
|
0
|
THOMAS
D MCCROSSAN & PATRICIA M MCCROSSAN
|
|
900
|
900
|
0
|
ARTHUR
NAVARRETTE & LISA NAVARRETTE
|
|
900
|
900
|
0
|
MATTHEW
SWEENEY
|
|
900
|
900
|
0
|
VERONICA
THOMAS & EZEKIEL THOMAS
|
|
900
|
900
|
0
|
TUPOU
WOLFGRAMM
|
|
900
|
900
|
0
|
THE
LANDIS FAMILY TRUST DATED 8/20/99
|
|
800
|
800
|
0
|
SHANE
RATHMAN
|
|
800
|
800
|
0
|
ROGER
CHRISTOPH RIDLEY
|
|
800
|
800
|
0
|
JEFFREY
DASHEFSKY (4)
|
|
750
|
750
|
0
|
CHRISTOPHER
HENNING & KRISTEN HENNING
|
|
750
|
750
|
0
|
JULIEANN
PRUETT
|
|
750
|
750
|
0
|
BETH
ANN SMITH
|
|
750
|
750
|
0
|
CHRISTA
D STACY
|
|
750
|
750
|
0
|
R
SAMUEL WHEELER
|
|
750
|
750
|
0
|
MATHEW
AMBROSO
|
|
700
|
700
|
0
|
JAMES
CONNER & TINA CONNER
|
|
700
|
700
|
0
|
MIKE
OLIVE
|
|
700
|
700
|
0
|
FRANK
DONATELLI
|
|
636
|
636
|
0
|
LINDA
S DORRELL
|
|
622
|
622
|
0
|
CHRIS
LIVINGSTON
|
|
600
|
600
|
0
|
JON
UTTERBACK
|
|
600
|
600
|
0
|
ELANA
CLARK
|
|
540
|
540
|
0
|
SHARON
P DAVIS
|
|
525
|
525
|
0
|
ANTHONY
BAKER
|
|
500
|
500
|
0
|
NAOMI-SADI
MANDEL BIRD
|
|
500
|
500
|
0
|
NICK
BIRD
|
|
500
|
500
|
0
|
SYBIL
K BROOKS
|
|
500
|
500
|
0
|
DAVID
CLARK
|
|
500
|
500
|
0
|
MICHAEL
ELLIS & ALLISON L ELLIS
|
|
500
|
500
|
0
|
JAMES
FORTE
|
|
500
|
500
|
0
|
DIANE
FREITAS
|
|
500
|
500
|
0
|
ISAIAH
6:8 MINISTRIES
|
|
500
|
500
|
0
|
CARLOS
JAIME & AMBAR JAIME
|
|
500
|
500
|
0
|
CHRISTOPHER
JAIME
|
|
500
|
500
|
0
|
CHAD
A JOCHENS
|
|
500
|
500
|
0
|
KAREEN
LEE
|
|
500
|
500
|
0
|
RICHARD
R LUTZ & ROSEMARIE A LUTZ JT TEN WROS
|
|
500
|
500
|
0
|
ED
TELLES
|
|
500
|
500
|
0
|
ADAM
WARDEN
|
|
500
|
500
|
0
|
ANN
WHEELER
|
|
500
|
500
|
0
|
DONALD
E SEARS OVERSEER BETH RACHMAN ASSEMBLIES
|
|
435
|
435
|
0
|
KENNETH
BROWNING
|
|
400
|
400
|
0
|
JOSE
JIMENEZ
|
|
400
|
400
|
0
|
JOE
KRELIC JR
|
|
400
|
400
|
0
|
STEPHANY
M MCMANUS
|
|
400
|
400
|
0
|
KAREN
TROUP
|
|
400
|
400
|
0
|
DON
HAYES & LINDA HAYES
|
|
334
|
334
|
0
|
JEROLD
CAMPBELL
|
|
300
|
300
|
0
|
JIM
GEHMAN & LORI GEHMAN
|
|
300
|
300
|
0
|
VIRGINIA
GILL
|
|
300
|
300
|
0
|
LOUIS
JOHNSON
|
|
300
|
300
|
0
|
MARY
RUST
|
|
300
|
300
|
0
|
JEROLD
L STAUFFER
|
|
259
|
259
|
0
|
WILLIAM
DOYLE
|
|
250
|
250
|
0
|
GARY
ELM
|
|
250
|
250
|
0
|
WILLIAM
H GRIMM
|
|
250
|
250
|
0
|
LAURIE
BERBERICH
|
|
222
|
222
|
0
|
ANTHONY
J WILLIAMS & BETSY K WILLIAMS
|
|
222
|
222
|
0
|
DOUGLAS
A CHUNGLO
|
|
200
|
200
|
0
|
DAVID
K CLARK
|
|
200
|
200
|
0
|
CEKENIA
RILEY
|
|
200
|
200
|
0
|
REGINA
SEARS
|
|
200
|
200
|
0
|
ROSEMARY
WAREHAM
|
|
200
|
200
|
0
|
CHARLES
WILLIAMS
|
|
200
|
200
|
0
|
STAN
ROSE & JUDY ROSE
|
|
120
|
120
|
0
|
CARLOTTA
BOWMAN
|
|
100
|
100
|
0
|
DOROTHY
MACKEY
|
|
100
|
100
|
0
|
CHARLES
R SCHWANEKAMP
|
|
100
|
100
|
0
|
(1)
Ownership as of June 11, 2007, for the selling stockholders based on information
provided by the selling stockholders or known to us.
(2)
Unless otherwise noted, the selling stockholders received their shares in
connection with the Registrant’s merger with Ethos Environmental, Inc., a Nevada
corporation, which closed on or about November 1, 2006.
(3)
Certain of the selling stockholders listed are members of the National
Association of Securities Dealers, Inc. or an affiliate of such a member.
However, any such members listed as selling stockholders do not beneficially
own
any shares of our common stock. Rather, all such members are holding as
“nominees” for shareholder clients. All such members listed as selling
stockholders were also holding as “nominees” for shareholder clients prior to
the Registrant’s transaction with Ethos Environmental, Inc.
(4)
Aurelius Consulting Group Inc. and Jeffrey Dashefsky received shares for
services rendered in April 2007.
The
selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock
or
interests in shares of common stock received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any
or
all of their shares of common stock or interests in shares of common stock
on
any
stock
exchange, market or trading facility on which the shares are traded or in
private transactions. These dispositions may be at fixed prices, at prevailing
market prices at the time of sale, at prices related to the prevailing market
price, at varying prices determined at the time of sale, or at negotiated
prices.
The
selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
· |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
· |
block
trades in which the broker-dealer will attempt to sell the shares
as
agent, but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
· |
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
· |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
· |
privately
negotiated transactions;
|
· |
short
sales effected after the date the registration statement of which
this
Prospectus is a part is declared effective by the
SEC;
|
· |
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
· |
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
· |
a
combination of any such methods of sale;
and
|
· |
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also
may
transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the
common
stock
to
broker-dealers that in turn may sell these securities. The selling stockholders
may also enter into option or other transactions with broker-dealers or other
financial institutions or the creation of one or more derivative securities
which require the delivery to such broker-dealer or other financial institution
of shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented
or
amended to reflect such transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common
stock
offered by them will be the purchase price of the common stock less discounts
or
commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole
or
in part, any proposed purchase of common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are "underwriters" within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements
of
the Securities Act.
To
the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable
commissions
or discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In
order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not be
sold
unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
The
anti-manipulation rules of Regulation M under the Exchange Act may apply to
sales of our Common Stock and activities of the selling stockholders. In
addition, to the extent applicable we will make copies of this prospectus
(as
it
may be
supplemented or amended from time to time) available to the selling stockholders
for the purpose of satisfying the prospectus delivery requirements of the
Securities Act. The selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities
Act.
We
will
pay all costs and expenses incurred in connection with the registration under
the Securities Act of 1933 of the shares of common stock offered by the selling
stockholders, including all registration and filing fees, listing fees, printing
expenses, and our legal and accounting fees. We
have
agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to
the
registration of the shares offered by this prospectus.
We
have
agreed with the selling stockholders to keep the registration statement of
which
this prospectus constitutes a part effective until the earlier of (1) such
time
as all of the shares covered by this prospectus have been disposed of pursuant
to and in accordance with the registration statement or (2) the date on which
the shares may be sold pursuant to Rule 144(k) of the Securities
Act.
The
legality of the issuance of the shares offered in this prospectus will be passed
upon for us by SteadyLaw Group, LLP.
The
financial statements for the years ended December 31, 2006 and December 31,
2005
included in this Prospectus, have been audited by Peterson Sullivan, PLLC,
independent registered public accounting firm, as stated in their report
appearing herein and elsewhere in this Registration Statement, and have been
so
included in reliance upon the report of this firm given upon its authority
as
experts in auditing and accounting.
No
expert
or counsel named in this prospectus as having prepared or certified any part
of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the Common Stock was employed on a contingency basis, or had,
or
is to receive, in connection with the offering, a substantial interest, direct
or indirect, in the registrant or any of its parents or subsidiaries. Nor was
any such person connected with the registrant or any of its parents or
subsidiaries as a promoter, managing or principal underwriter, voting trustee,
director, officer, or employee.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
There
have been no disagreements regarding accounting and financial disclosure matters
with our independent certified public accountants.
We
have
filed with the SEC a Registration Statement on Form SB-2 (including exhibits)
under the Securities Act, with respect to the shares to be sold in this
Offering. This prospectus does not contain all the information set forth in
the
Registration Statement as some portions have been omitted in accordance with
the
rules and regulations of the SEC. For further information with respect to our
Company and the Common Stock offered in this prospectus, reference is made
to
the Registration Statement, including the exhibits filed thereto, and the
financial statements and notes filed as a part thereof. With respect to each
such document filed with the SEC as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved.
We
are
subject to the information and reporting requirements of the Exchange Act,
and
we file reports, proxy statements and other information with the SEC pursuant
to
the Securities Act. The public may read and copy any materials that we file
with
the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and
other
information regarding issuers that file electronically with the SEC. The address
of that site is http://www.sec.gov.
TABLE
OF CONTENTS
|
CONSOLIDATED
BALANCE SHEET
|
|
F-1 |
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
F-1 |
CONSOLIDATED
STATEMENTS OF OPERATIONS
(For
the Three Months Ended March 31, 2007 and 2006)
|
|
F-2 |
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
(For
the Three Months Ended March 31, 2007)
|
|
F-3 |
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(For
the Three Months Ended March 31, 2007 and 2006)
|
|
F-4 |
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(For
the Three Months Ended March 31, 2007)
|
|
F-5 |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
F-8 |
CONSOLIDATED
BALANCE SHEET
|
|
F-9 |
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
F-9 |
CONSOLIDATED
STATEMENTS OF OPERATIONS
(For
the Years Ended December 31, 2006 and 2005)
|
|
F-10 |
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
(For
the Years Ended December 31, 2006 and 2005)
|
|
F-11 |
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(For
the Years Ended December 31, 2006 and 2005)
|
|
F-12 |
NOTES
TO FINANCIAL STATEMENTS
(For
the Years Ended December 31, 2006 and 2005)
|
|
F-14 |
FINANCIAL
STATEMENTS
ETHOS
ENVIRONMENTAL, INC.
CONSOLIDATED
BALANCE SHEET
(Unaudited)
ASSETS
|
|
March
31,
2007
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
|
$
|
47,719
|
|
Restricted
Cash
|
|
300,000
|
|
Accounts
Receivable (Net )
|
|
2,687,809
|
|
Inventory
|
|
445,735
|
|
Other
Current Assets
|
|
40,000
|
|
Total
Current Assets
|
$
|
3,521,263
|
|
|
|
|
|
Property
and Equipment, Net
|
|
5,747,965
|
|
Goodwill
|
|
2,411,103
|
|
Customer
List, Net
|
|
1,834,000
|
|
Other
Assets
|
|
270,475
|
|
Total
Assets
|
$
|
|
13,784,806
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
LIABILITIES:
CURRENT
LIABILITIES:
|
|
|
|
Accounts
Payable
|
$
|
1,289,150
|
|
Accrued
Expenses
|
|
116,624
|
|
Notes
Payable
|
|
5,250,000
|
|
Note
Payable Related Party
|
|
30,124
|
|
Total
Current Liabilities
|
|
6,685,898
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY:
|
|
|
|
Common
Stock, $.001 par value; 100,000,000
shares
authorized; 23,575,687 issued and
outstanding
|
|
2,358
|
|
Additional
Paid-in Capital
|
|
16,011,157
|
|
Accumulated
Deficit
|
|
(8,914,607)
|
|
Total
Shareholders’ Equity
|
|
7,098,908
|
|
Total
Liabilities and Shareholders’ Equity
|
$
|
13,784,806
|
|
See
notes
to consolidated financial statements.
ETHOS
ENVIRONMENTAL, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
For
the Three Months Ended March 31, 2007 and 2006
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
Revenue
|
2,697,133
|
|
1,318,925
|
|
|
|
Cost
of Goods Sales
|
865,306
|
|
231,063
|
|
|
|
Gross
Profit
|
1,831,826
|
|
1,087,862
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
Selling
Expenses
|
131,340
|
|
125,001
|
|
|
|
General
& Administrative
|
504,166
|
|
264,828
|
|
|
|
Total
Operating Expenses
|
635,506
|
|
389,829
|
|
|
|
Operating
Income
|
1,196,320
|
|
698,033
|
|
|
|
|
|
|
|
|
Interest
Expenses
|
(177,660)
|
|
0
|
|
|
Net
Income
|
1,018,660
|
|
698,033
|
|
|
|
|
|
|
|
|
|
|
|
NetIncome
per Common Share (basic)
|
$
0.04
|
|
$
0.62
|
|
|
|
Net
Income per Common Share (fully diluted)
|
$
0.04
|
|
$
0.62
|
|
|
|
Weighted
average shares used in per share calculation (basic)
|
23,378,487
|
|
305,382
|
|
|
|
Weighted
average shares used in per share calculation (fully
diluted)
|
26,278,487
|
|
305,382
|
See
notes
to consolidated financial statements.
ETHOS
ENVIRONMENTAL, INC.
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
|
|
For
the Three Months Ended March 31, 2007
|
|
|
|
Common
Stock
|
|
Additional
Paid-in Capital
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
Amount
|
|
|
Total
|
|
|
Balance
at December 31, 2006
|
|
23,107,687
|
|
$2,311
|
|
$15,961,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
468,000
|
|
47
|
|
49,953
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
March 31, 2007 |
|
|
23,575,687
|
|
$ |
2,358 |
|
$ |
16,011,157 |
|
$
|
-8,914,607
|
|
$ |
7,098,908 |
|
|
|
|
See
notes
to consolidated financial statements.
ETHOS
ENVIRONMENTAL, INC.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
For
the Three Months Ended March 31, 2007 and
2006
|
|
|
|
|
|
2007
|
|
2006
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
Net
Income
|
1,018,660
|
|
698,033
|
|
|
|
Adjustments
to reconcile Net Income
|
|
|
|
|
|
|
to
net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation
|
101,231
|
|
20,300
|
|
|
|
Amortization
|
100,036
|
|
0
|
|
|
|
Stock
Issued for Services
|
50,000
|
|
0
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
(2,360,485)
|
|
(605,963)
|
|
|
|
|
|
Inventory
|
-34,820
|
|
204,835
|
|
|
|
|
|
Other
Assets
|
(15,074)
|
|
(2,000)
|
|
|
|
|
|
Accounts
Payable & Accrued Expenses
|
1,422,269
|
|
33,554
|
|
|
|
Net
cash provided by Operating Activities
|
281,817
|
|
348,759
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
Purchase
of Property & Equipment
|
(90,770)
|
|
(5,198,691)
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
Deposit
Made with Lease-back
|
(270,500)
|
|
0
|
|
|
|
|
Proceeds
from Note Payable
|
82,181
|
|
4,750,000
|
|
|
|
|
Payments
to Note Payable, Related Party
|
(19,876)
|
|
0
|
|
|
|
Net
cash provided by Financing Activities
|
(208,195)
|
|
4,750,000
|
|
|
Net
cash increase for period
|
(17,148)
|
|
(99,932)
|
|
|
Cash
at beginning of period
|
64,867
|
|
198,498
|
|
Cash
at end of period
|
47,719
|
|
98,566
|
|
SUPPLEMENTAL
NON CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
Value
of equipment sold then leased back
|
$637,075
|
|
|
|
See
notes
to consolidated financial statements.
F-4
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Three
months ended March 31, 2007
Note
1. Organization and Significant Accounting Policies
Organization
Ethos
Environmental, Inc. ("the Company") manufactures and distributes fuel
reformulating products that increase fuel mileage, reduce emissions, and
maintain lower fuel costs. The Company is based in Southern California and
sells
its product, primarily in the United States, Latin America and Asia.
Acquisition
On
April
20, 2006, Victor Industries, Inc., with the approval of its Board of Directors,
executed an Agreement and Plan of Merger with San Diego, CA based Ethos
Environmental, Inc., a Nevada corporation.
At
a
meeting of shareholders of the Company held on October 30, 2006, a majority
of
shareholders voted in favor of the merger. On November 2, 2006, the merger
was
consummated. As part of the merger, the Company redomiciled to Nevada, and
changed its name to Ethos Environmental, Inc. In addition thereto, and as part
of the merger, the Company set a record date of November 16, 2006 for a reverse
stock split of 1 for 1,200. All of the per share data in these consolidated
financial statements are presented on a post-split basis.
The
merger provided for a business combination transaction by means of a merger
of
Ethos with and into the Company, with the Company as the corporation surviving
the merger. Accordingly, the comparative information presented is that of Ethos
Environmental, Inc.
Going
Concern
The
Company has incurred significant losses from operations in the last two years.
The Company's ability to continue as a going concern is in substantial doubt
and
is dependent upon obtaining additional financing and/or achieving a sustainable
profitable level of operations.
Management
of the Company has undertaken steps as part of a plan with the goal of
sustaining the Company operations for the next twelve months and beyond. These
steps include: (a) attempting to raise additional capital and/or other forms
of
financing; (b) controlling overhead and operating expenses; and (c) continuing
to increase the sales of its fuel reformulating product. There can be no
assurance that any of these efforts will be successful.
Principles
of Consolidation
These
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary. All material inter-company accounts have been
eliminated in consolidation.
Interim
Disclosure
The
interim period consolidated financial statements have been prepared by the
Company pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosure
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such SEC rules and regulations. The interim period
consolidated financial statements should be read together with the audited
consolidated financial statements and accompanying notes for the years ended
December 31, 2006 and 2005, included in the Company's annual reports on
Form 10-KSB. In the opinion of the Company, the unaudited consolidated financial
statements contained herein contain all adjustments necessary (consisting of
a
normal recurring nature) to present a fair statement of the results of the
interim periods presented.
The
results of operations for the three months ended March 31, 2007, are not
necessarily indicative of the results to be expected for the entire year ending
December 31, 2007.
F-5
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect certain reported amounts and disclosures. Actual
results could differ from the estimated amounts.
Goodwill
Goodwill
represents the excess of the purchase price of the estimated fair value of
the
net identified tangible and intangible assets of the acquired business. Goodwill
must be tested for impairment at least on an annual basis, or if an event occurs
or circumstances change prior to the annual test of impairment, then the
carrying value of goodwill must be tested on an interim basis. The Company
has
determined there is no impairment at March 31, 2007.
Customer
List
As
a
result of the acquisition, the Company acquired a customer list which has an
identifiable defined life. The customer lists is amortized on a straight-line
basis over a five-year period. The Company will continue to amortize the
identifiable intangible asset over the life of the asset unless an event occurs
or circumstances change that indicate that the carrying value of this asset
may
not be recoverable. The following table reflects the cost of the customer list
and the accumulated amortization related to this asset as of March 31,
2007:
Customer
list
|
|
$
2,000,726
|
Accumulated
Amortization
|
|
(166,726)
|
|
|
$
1,834,000
|
For
the
three months ending March 31, 2007, the Company recorded $100,036 as
amortization expense. The Company expects to record annual amortization expense
of approximately $400,000 in 2007, $400,000 in 2008, $400,000 in 2009, $400,000
in 2010 and 333,000 in 2011 related to the customer list.
Revenue
Recognition
Revenue
from the sale of fuel reformulating products is recorded when the product is
shipped, the price is fixed and determinable, collection is reasonably assured,
and no further obligations of the Company remain.
One
customer accounted for 78% of revenue for the quarter ended March 31, 2007.
F-6
Stock
Based Compensation
The
Company accounts for stock based awards in accordance with SFAS No. 123(R)
“share-based payment”, which requires measurement of compensation cost for all
stock-based awards at fair value on the date of grant and recognition of
compensation over the service period for awards expected to vest. The fair
value
of stock options is determined using the Black-Scholes valuation model, which
is
consistent with the Company’s valuation techniques previously utilized for
options in footnote disclosures required under SFAS No. 123, “Accounting for
Stock Based Compensation”, as amended by SFAS No. 148, “Accounting for Stock
Based Compensation Transition and Disclosure”.
Earnings
Per Share
Basic
earnings per share is computed by dividing the net income available to common
shareholders by the weighted average number of common shares outstanding in
the
period. Diluted earnings per share takes into consideration common shares
outstanding (computed under basic earnings per share) and potentially dilutive
common shares. There were 2,900,000 dilutive securities outstanding at March
31,
2007 and none in 2006. The convertible feature of the Notes Payable is not
included in the calculation of diluted earnings per share since it would not
have an appreciable effect on the earnings per share.
Note
2. New Accounting Pronouncements
There
are
no new accounting pronouncements that have been issued, that are not effective
yet that are expected to have a material impact on the Company’s consolidated
financial statements.
Note
3. Subsequent Events
Stock
Issuances
There
were 483,500 shares issued for services subsequent to the quarter ended March
31, 2007, and 250,000 shares cancelled.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors
Ethos
Environmental, Inc.
San
Diego, CA
We
have
audited the accompanying consolidated balance sheet of Ethos Environmental,
Inc., ("the Company") as of December 31, 2006, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 2006 and 2005. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company has determined that
it
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. 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.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Ethos Environmental, Inc.,
as of December 31, 2006, and the results of its operations and its cash
flows for the years ended December 31, 2006 and 2005, in conformity with
accounting principles generally accepted in the United States.
The
accompanying consolidated financial statements have been prepared assuming
the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has experienced recurring losses
from operations. This raises substantial doubt about the Company's ability
to
continue as a going concern. Management's plans regarding this matter are also
described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/S/
PETERSON SULLIVAN PLLC
Seattle,
Washington
April 15,
2007
F-8
ETHOS
ENVIRONMENTAL, INC.
CONSOLIDATED
BALANCE SHEET
ASSETS
|
|
December
31,
2006
|
CURRENT
ASSETS:
|
|
|
Cash
|
|
$
64,867
|
Restricted
Cash
|
|
300,000
|
Accounts
Receivable (Net )
|
|
327,324
|
Inventory
|
|
410,915
|
Other
Current Assets
|
|
19,900
|
Total
Current Assets
|
|
$
1,123,006
|
|
|
|
Property
and Equipment, Net
|
|
6,380,308
|
Goodwill
|
|
2,411,103
|
Customer
List, Net
|
|
1,934,036
|
Other
Assets
|
|
5,000
|
|
|
|
Total
Assets
|
|
$
11,853,453
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
LIABILITIES:
CURRENT
LIABILITIES:
|
|
|
Accounts
Payable
|
|
$
503,898
|
Accrued
Expenses
|
|
101,488
|
Notes
Payable
|
|
5,167,819
|
Note
Payable Related Party
|
|
50,000
|
Total
Current Liabilities
|
|
5,823,205
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY:
|
|
|
Common
Stock, $.001 par value; 100,000,000
shares
authorized; 23,107,687 issued and
outstanding
|
|
2,311
|
Additional
Paid-in Capital
|
|
15,961,204
|
Accumulated
Deficit
|
|
(9,933,267)
|
Total
Shareholders’ Equity
|
|
6,030,248
|
Total
Liabilities and Shareholders’ Equity
|
|
$
11,853,453
|
See
notes
to consolidated financial statements.
ETHOS
ENVIRONMENTAL, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the Years Ended December 31, 2006 and 2005
|
|
2006 |
|
2005 |
|
Revenues
|
|
$
4,768,013
|
|
$
1,780,825
|
|
Cost
of Sales
|
|
1,340,135
|
|
526,459
|
|
Gross
Profit
|
|
3,427,878
|
|
1,254,366
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
Selling
Expenses
General
and Administrative
|
|
4,689,910
5,346,409
|
|
483,953
1,821,160
|
|
Total
Operating Expenses |
|
10,036,319 |
|
2,305,113 |
|
Operating
Loss
|
|
(6,608,441)
|
|
(1,050,747)
|
|
|
|
|
|
|
|
Other
Income
Interest
Expense
Other
Expense
|
|
730,813
(620,244)
(58,931)
|
|
0
(890)
0
|
|
Net
Loss
|
|
$
(6,556,803)
|
|
$
(1,051,637)
|
|
|
|
|
|
|
|
Net
Loss per Common Share
|
|
$
(6.83)
|
|
$
(5.38)
|
|
Weighted
average shares used in per share calculation (basic and fully
diluted)
|
|
|
960,685
|
|
|
195,504
|
|
See
notes
to consolidated financial statements.
ETHOS
ENVIRONMENTAL, INC.
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
For
the Years Ended December 31, 2006 and 2005
|
|
|
Common
Stock
|
|
Additional
Paid-in Capital
|
|
|
|
|
|
|
Number
of Shares
|
|
Amount
|
|
|
Accumulated
Deficit
|
|
Total
|
|
Balance
at December 31, 2004 as restated
|
17,609,287
|
|
$
17,610
|
|
$
3,793,046
|
|
$(2,324,827)
|
|
$1,485,829
|
Common
stock issued for cash
|
5,108,190
|
|
5,108
|
|
171,092
|
|
|
|
176,200
|
Net
loss
|
|
|
|
|
|
|
(1,051,637)
|
|
(1,051,637)
|
Balance
at December 31, 2005 as restated
|
22,717,477
|
|
22,718
|
|
3,964,138
|
|
(3,376,464)
|
|
610,392
|
|
Common
stock repurchased
|
|
(5,000,000)
|
|
(5,000)
|
|
(45,000)
|
|
|
|
(50,000)
|
Capital
contribution
|
|
|
|
|
|
45,000
|
|
|
|
45,000
|
Shares
cancelled as part of reverse acquisition
|
|
(17,717,477)
|
|
(17,718)
|
|
|
|
|
|
(17,718)
|
Common
Stock issued to effect reverse acquisition
|
|
17,718,187
|
|
1,772
|
|
4,427,775
|
|
|
|
4,429,547
|
Effects
of Reverse acquisition
|
|
479,500
|
|
48
|
|
(11,208)
|
|
|
|
(11,160)
|
Common
stock issued for services
|
4,910,000
|
|
491
|
|
7,580,499
|
|
|
|
7,580,990
|
Net
Loss
|
|
|
|
|
|
|
|
(6,556,803)
|
|
(6,556,803)
|
Balance
at December 31, 2006
|
|
23,107,687
|
|
$2,311
|
|
$15,961,204
|
|
($9,933,267)
|
|
$6,030,248
|
|
|
|
|
|
|
|
|
|
|
|
See
notes
to consolidated financial statements.
ETHOS
ENVIRONMENTAL, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Years Ended December 31, 2006 and 2005
|
|
2006
|
|
2005
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
Net
Loss
|
|
$
(6,556,803)
|
|
$
(1,051,637)
|
|
Adjustments
to Reconcile Net Loss to net Cash provided by operating
activities
|
|
|
|
|
|
Common
Stock Issued for Expenses
|
|
7,580,990
|
|
0
|
|
Depreciation
|
|
292,096
|
|
83,209
|
|
Amortization
|
|
66,690
|
|
0
|
|
Changes
in allowance for bad debt
Changes
in Operating Assets and Liabilities
|
|
(450,297)
|
|
527,847
|
|
Accounts
Receivable
|
|
413,030
|
|
(451,030)
|
|
Inventory
|
|
(151,351)
|
|
(200,816)
|
|
Other
assets
|
|
67,209
|
|
(10,000)
|
|
Accounts
Payable
|
|
(246,658)
|
|
567,575
|
|
Accrued
Expenses
|
|
10,929
|
|
90,559
|
|
|
|
|
|
|
|
Net
Cash Provided Used by Operating Activities
|
|
1,025,835
|
|
(444,293)
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
Building
Deposit
|
|
0
|
|
(200,000)
|
|
Purchase
of Property and Equipment
|
|
(6,359,874)
|
|
(101,549)
|
|
Cash
Received from Acquisition
|
|
589
|
|
0
|
|
|
|
|
|
|
|
Net
Cash Used in Investing Activities
|
|
(6,359,285)
|
|
(301,549)
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
Proceeds
from Note Payable
Proceeds
from Related Party Note Payable
|
|
5,167,819
50,000
|
|
11,003
0
|
|
Repayment
of Note Payable
Repurchase
of Common Stock
Proceeds
from Common Stock sales
|
|
(13,000)
(50,000)
0
|
|
0
0
176,200
|
|
Proceeds
from Capital Contributions
|
|
45,000
|
|
0
|
|
Net
Cash Provided by Financing Activities
|
|
5,199,819
|
|
187,203
|
|
Net
Change in Cash and Cash Equivalents
|
|
(133,631)
|
|
(558,639)
|
|
Cash
at Beginning of Period
|
|
498,498
|
|
1,057,137
|
|
Cash
at End of Period
|
|
$
364,867
|
|
$
498,498
|
|
Reconciliation
to Balance Sheet Presentation:
|
|
|
|
|
|
Cash
|
|
$
64,867
|
|
$
198,498
|
|
Restricted
Cash
|
|
300,000
|
|
300,000
|
|
|
|
$
|
364,867
|
|
$
|
498,498
|
|
See
notes
to consolidated financial statements.
Supplemental
Disclosure of Non-Cash Investing Activities:
|
|
|
2006
|
Acquisition
of Ethos Environmental, Inc.:
|
|
|
Accounts
Receivable acquired
|
$
|
48,972
|
Accounts
Payable assumed
|
|
(60,720)
|
Goodwill
acquired
|
|
2,411,103
|
Customer
List acquired
|
|
2,000,726
|
Common
stock issued for acquisition net of shares cancelled and effects
of
Reverse
acquisition
|
|
(4,400,669)
|
NOTES
TO FINANCIAL STATEMENTS
Note
1. Organization and Significant Accounting Policies
Organization
Ethos
Environmental, Inc. ("the Company") manufactures and distributes fuel
reformulating products that increase fuel mileage, reduce emissions, and
maintain lower fuel costs. The Company is based in Southern California and
sells
its product, primarily in the United States, Latin America and Asia.
Acquisition
On
April
20, 2006, Victor Industries, Inc., with the approval of its Board of Directors,
executed an Agreement and Plan of Merger with San Diego, CA based Ethos
Environmental, Inc., a Nevada corporation.
At
a
meeting of shareholders of the Company held on October 30, 2006, a majority
of
shareholders voted in favor of the merger. On November 2, 2006, the merger
was
consummated. As part of the merger, the Company redomiciled to Nevada, and
changed its name to Ethos Environmental, Inc. In addition thereto, and as part
of the merger, the Company set a record date of November 16, 2006 for a reverse
stock split of 1 for 1,200. All of the per share data in these consolidated
financial statements are presented on a post-split basis.
The
merger provides for a business combination transaction by means of a merger
of
Ethos with and into the Company, with the Company as the corporation surviving
the merger. Under the terms of the merger, the Company acquired all issued
and
outstanding shares of Ethos in exchange for 17,718,187 shares of common stock
of
the Company. Shares of Company common stock, representing an estimated 97%
of
the total issued and outstanding shares of Company common stock, was issued
to
the Ethos stockholders. Ethos shareholders were able to exchange their shares
beginning on or after November 16, 2006, the record date set for the reverse
stock split.
The
transaction between the Company and Ethos Environmental, Inc. is accounted
for
as a purchase transaction; that is, the transaction is equivalent to the
issuance of shares by the Registrant for the net assets of Ethos
Environmental, Inc. The shares issued by the Registrant were valued at $0.25
per
share, a value determined by management’s estimate of the dilution effect
expected to occur from the issuance of such a large block of shares, i.e.
17,718,187 shares of common stock. The net value recorded equals management’s
estimate of the value of the acquired assets.
The
merger was intended to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and no gain or loss will be
recognized by the Company as a result of the merger.
The
merger is accounted for under the purchase method of accounting as a reverse
acquisition in accordance with U.S. generally accepted accounting principles
for
accounting and financial reporting purposes. Under this method of accounting,
Ethos is treated as the “accounting acquirer” company for financial reporting
purposes. Accordingly the operations of the company are included in these
financial statements as of November 2, 2006. In accordance with guidance
applicable to these circumstances, the merger was considered to be a capital
transaction in substance. Accordingly, for accounting purposes, the merger
was
treated as the equivalent of Ethos issuing stock for the net monetary assets
of
the Company. The net monetary assets of the Company have been stated at their
fair value.
F-14
The
terms
of the acquisition included the Company's issuance of 17,718,187 shares of
common stock to the shareholders of Ethos. Upon the Company’s issuance of the
17,718,187 shares, Ethos cancelled its 17,717,477 shares of common stock issued
and outstanding. Since this was accounted for as a reverse acquisition, the
Company is the legal acquirer while Ethos is the accounting acquirer.
Accordingly, the financial statements present the activities of Ethos while
the
stock issued and outstanding is that of the Company.
As
part
of the reverse acquisition, the prior activities of the Company were
discontinued. No discontinued operations are presented in these financial
statements since no expenses or revenue were incurred after November 2, 2006
related to these operations.
The
Company agreed to acquire Ethos Environmental, Inc. because of its anticipated
future growth in a marketplace that is in strong demand for its product, and
it
was believed that the acquisition would benefit the existing shareholders of
both companies. Valuation of the Ethos Environmental, Inc. working capital
approximated $4,412,000, or $0.25 per share of issued common stock. The fair
valuation of the purchase was determined to be $4,412,000 of which $2,000,700
was attributable to the value of the Customer List and the remainder to
Goodwill.
The
following unaudited pro forma financial information presents the operations
of
Victor Industries, Inc. ("the Company") and Ethos Environmental, Inc. ("Ethos")
as if the acquisition had occurred on January 1, 2006 and 2005, respectively.
This pro forma data is presented for informational purposes only and is not
necessarily indicative of what the results of operations would have been had
the
acquisition been completed the acquisition at the date indicated. In addition,
the unaudited pro forma condensed combined statement of operations does not
purport to project the future operating results of the combined company. The
balance sheet information is not presented since the two companies are
consolidated at December 31, 2006.
Pro-forma
Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
$
4,768,013
|
|
$
1,785,210
|
|
Net
Loss
|
|
|
|
(7,175,207)
|
|
(1,705,951)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, Basic and Diluted
|
|
|
|
|
|
$
(7.47)
|
|
$
(8.73)
|
|
|
|
|
|
|
|
|
|
Weighted
number of shares outstanding
|
|
|
|
|
|
960,685
|
|
195,204
|
|
Going
Concern
The
Company has incurred significant losses from operations in the last two years.
The Company's ability to continue as a going concern is in substantial doubt
and
is dependent upon obtaining additional financing and/or achieving a sustainable
profitable level of operations.
Management
of the Company has undertaken steps as part of a plan with the goal of
sustaining the Company operations for the next twelve months and beyond. These
steps include: (a) attempting to raise additional capital and/or other forms
of
financing; (b) controlling overhead and operating expenses; and (c) continuing
to increase the sales of its fuel reformulating product. There can be no
assurance that any of these efforts will be successful.
F-15
Principles
of Consolidation
These
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary. All material inter-company accounts have been
eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect certain reported amounts and disclosures. Actual
results could differ from the estimated amounts.
Cash
Cash
includes a payroll account and an operating checking account held at a financial
institution. The Company's cash balances exceed federally insured limits from
time to time.
Restricted
cash consists of a deposit made in August 2005 that is being held in a bank
in
Beijing, China. This deposit is required by the government of China and must
be
held in the account a minimum of eighteen months in order for the Company to
conduct business in China.
Accounts
Receivable
Accounts
receivable are stated at their principal balances, do not bear interest and
are
generally unsecured. Management considers all balances over 30 days old to
be
past due. However, if credit is extended management conducts a periodic review
of the collectability of its accounts receivable. If an account is determined
to
be uncollectible based on historical experience and the current economic
climate, an allowance is established and the account is written off against
the
allowance. The Company determined that an allowance of $126,485 and $576,782
at
December 31, 2006 and 2005, respectively, was necessary. At December 31,
2006 62% of accounts receivable is due from one customer.
Inventory
Inventory
consists primarily of the Company's fuel reformulating product and is stated
at
the lower of cost or market.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the anticipated lease term or
the
estimated useful life. The Company's policy is to capitalize items with a cost
greater than $4,000 and an estimated useful life greater than one year. The
Company reviews all property and equipment for impairment at least
annually.
F-16
Goodwill
Goodwill
represents the excess of the purchase price of the estimated fair value of
the
net identified tangible and intangible assets of the acquired business. Goodwill
must be tested for impairment at least on an annual basis, or if an event occurs
or circumstances change prior to the annual test of impairment, then the
carrying value of goodwill must be tested on an interim basis. The Company
has
determined there is no impairment at December 31, 2006.
Customer
List
As
a
result of the acquisition, the Company acquired a customer list which has an
identifiable defined life. The customer lists is amortized on a straight-line
basis over a five-year period. The Company will continue to amortize the
identifiable intangible asset over the life of the asset unless an event occurs
or circumstances change that indicate that the carrying value of this asset
may
not be recoverable. The following table reflects the cost of the customer list
and the accumulated amortization related to this asset as of December 31,
2006:
Customer
list
|
|
$2,000,276
|
Accumulated
Amortization
|
|
(66,690)
|
|
|
$1,934,036
|
For
the
year ending December 31, 2006, the Company recorded $66,690 as amortization
expense. The Company expects to record annual amortization expense of
approximately $400,000 in 2007, $400,000 in 2008, $400,000 in 2009, $400,000
in
2010 and 333,000 in 2011 related to the customer list.
Notes
Payable
On
December 26, 2006, the company entered into a Demand Loan Agreement for $500,000
with an annual interest rate of 12%. At December 31, 2006, $417,819 had been
funded. The remainder of the Demand Note was funded on January 2,
2007.
On
January 26, 2006 the Company secured a loan for its building in the amount
of
$4,750,000 with a convertible Promissory Note. The Note was convertible at
$2.50
per common share up to 1.9 million shares. The Note carried an annual interest
rate of 17% with interest-only payments and a term of one year. On December
6,
2006, the Note was assigned to another third party.
Prior
to
maturity, the Company approached the current Note holders and requested that
they extend the maturity of the Note to March 31, 2009. As part of its offer
to
induce the Note holder to extend the maturity date, the Company offered to
rescind the conversion feature and issue 1.9 million detachable warrants. The
Company is still currently negotiating the terms of a mutually acceptable
extension.
Note
Payable - Related Party
During
2006, there was one Loan Payable to the President of the Company in the amount
of $50,000. The loan has no stated repayment terms, is due on demand, is
unsecured and does not bear interest. The Note was issued for a deposit to
the
Company account for short-term working capital needs.
F-17
Fair
Value of Financial Instruments
The
Carrying value of the Company's accounts receivable, accounts payable, accrued
expenses, note payable, note payable related party and building loan approximate
their estimated fair value due to the relatively short maturities of those
instruments.
Revenue
Recognition
Revenue
from the sale of fuel reformulating products is recorded when the product is
shipped, the price is fixed and determinable, collection is reasonably assured,
and no further obligations of the Company remain.
Two
customers accounted for 88% of our revenues for the fiscal year ended December
31, 2006. One customer accounted for 40% and the second customer accounted
for
48%.
There
was
one U.S. customer that accounted for 40% of 2005 sales and one Hong Kong
customer that accounted for 30% of 2005 sales.
Stock
Based Compensation
Prior
to
January 1, 2006, the Company accounted for stock-based awards under the
intrinsic value method, which followed the recognition and measurement
principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”,
and related Interpretations. The intrinsic value method of accounting resulted
in compensation expense for stock options to the extent that the exercise prices
were set below the fair market price of the Company’s stock at the date of
grant.
As
of
January 1, 2006, the Company adopted SFAS No. 123(R) “share-based payment” using
the modified prospective method, which requires measurement of compensation
cost
for all stock-based awards at fair value on the date of grant and recognition
of
compensation over the service period for awards expected to vest. The fair
value
of stock options is determined using the Black-Scholes valuation model, which
is
consistent with the Company’s valuation techniques previously utilized for
options in footnote disclosures required under SFAS No. 123, “Accounting for
Stock Based Compensation”, as amended by SFAS No. 148, “Accounting for Stock
Based Compensation Transition and Disclosure”.
Since
the
Company did not issue stock options to employees during the year ended December
31, 2006 or 2005, there is no effect on net loss or earnings per share had
the
Company applied the fair value recognition provisions of SFAS No. 123(R) to
stock-based employee compensation. When the Company issues shares of common
stock to employees and others, the shares of common stock are valued based
on
the market price at the date the shares of common stock are approved for
issuance.
Loss
Per Share
Basic
loss per share is computed by dividing the net loss available to common
shareholders by the weighted average number of common shares outstanding in
the
period. Diluted loss per share takes into consideration common shares
outstanding (computed under basic earnings per share) and potentially dilutive
common shares. There were no dilutive securities outstanding at December 31,
2006 or 2005. The convertible feature of the Notes Payable is not included
in
the calculation of diluted earnings per share since the effect is anti-dilutive
due to the Company’s net loss.
F-18
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising expense for the years ended
December 31, 2006 and 2005, was $132,955 and $231,380, respectively and are
included in selling expenses in the consolidated financial
statements.
Shipping
and Handling
Expenses
related to shipping and handling are expenses as incurred and are included
in
"cost of sales" in the statement of operations.
Research
and Development
Research
and development costs are expensed to operations when incurred and are included
in general and administrative expenses in these consolidated financial
statements. The amounts expensed for the years ended December 31, 2006 and
2005
amounted to $112,051 and $132,404, respectively.
Concentrations
The
Company uses five vendors for most of its fuel reformulating products although
there are other companies that can provide equivalent products. These vendors
accounted for 90% of product purchases in 2006. During 2005, the company
primarily used one vendor for most of its fuel reformulating products. That
vendor accounted for 90% of products purchased in 2005.
Income
Taxes
The
Company accounts for its income taxes under the provisions of Statements of
Financial Accounting Standards No. 109 (SFAS No. 109). Income taxes are provided
for the tax effects of transactions reported in the financial statements and
consist of taxes currently due plus deferred taxes related primarily to
differences between the bases of certain assets and liabilities for financial
and tax reporting. The deferred taxes represent the future tax return
consequences of those differences, which will either be taxable when the assets
and liabilities are recovered or settled.
Foreign
Operations
Transaction
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the local functional currency (the U.S.
Dollar) are included in "general and administrative" expenses in the statements
of operations, which amounts were not material for the years ended
December 31, 2006 and 2005.
Reclassification
Certain
items from the 2005 financial statements have been reclassified to conform
to
the 2006 presentation.
Recent
Accounting Pronouncements
During
October 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”). This statement does not require any new fair value measurements
but provides guidance on how to measure fair value and clarifies the definition
of fair value under accounting principles generally accepted in the United
States of America. The statement also requires new disclosures about the extent
to which fair value measurements in financial statements are based on quoted
market prices, market-corroborated inputs, or unobservable inputs that are
based
on management’s judgments and estimates. The statement is effective for fiscal
years beginning after November 15, 2007. The statement will be applied
prospectively by the Company for any fair value measurements that arise after
the date of adoption.
F-19
The
FASB
has also issued SFAS No. 158, “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans—an amendment of FASB Statements
No. 87, 88, 106, and 132(R)”. As the Company has no plans covered by this
standard, it will have no effect on the consolidated financial
statements.
The
SEC
has issued Staff Accounting Bulletin No. 108, “Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements” (“SAB 108”), in September 2006. SAB 108 requires entities
to quantify misstatements based on their impact on each of their financial
statements and related disclosures. SAB 108 is effective as of December 31,
2006. The adoption of this standard is not expected have an impact on the
Company’s consolidated results of operations, cash flows or financial
position.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115.” This statement permits entities to choose to measure
eligible items at fair value at specified election dates. The statement is
effective as of the beginning of an entity’s first fiscal year that begins after
November 15, 2007 although early adoption is permitted provided that an entity
also adopts SFAS 157. The Company has not determined the impact this standard
will have on its consolidated operating results or financial position upon
adoption.
Note
2. Prior Period Adjustments
The
December 31, 2004 balances have been restated to correct for an error related
to
vehicles that were incorrectly recorded as assets in 2003 and 2004. The value
of
the assets removed was $282,366, less $25,440 of accumulated depreciation.
In
addition, the December 31, 2004 balances have been restated to reduce accrued
expenses by $38,917 due to a settlement that was reached with a vendor in
2004.
The
net
effect of the combined adjustments was to increase the accumulated deficit
and
decrease total stockholders’ equity by $218,009. There was no effect on earnings
per share.
Note
3. Property and Equipment
The
Company’s property and equipment consisted of the following at
December 31:
|
|
2006
|
|
2005
|
Building
|
|
$
5,845,417
|
|
$ 0
|
Equipment
|
|
886,353
|
|
167,591
|
Furniture
and fixtures
|
|
14,727
|
|
14,727
|
Computers
|
|
36,648
|
|
35,790
|
|
|
6,783,145
|
|
218,108
|
Less:
accumulated depreciation
|
|
(402,837)
|
|
(63,153)
|
|
|
$
6,380,308
|
|
$54,955
|
F-20
Note
4. Income Taxes
The
Company is liable for taxes in the United States. As of December 31, 2006,
the Company does not expect to have any income for tax purposes and therefore,
no tax liability or expense has been recorded in these financial
statements.
The
Company estimates that it has tax losses of approximately $12,300,000 which
may
be available to reduce future taxable income. Any tax loss carry forward
available expires between the years 2022 and 2025.
The
deferred tax asset associated with the estimated tax loss carry forward is
approximately $4,182,000. The Company has provided a valuation allowance against
the deferred tax asset. The valuation allowance increased by $2,370,000 and
$358,000 for 2006 and 2005, respectively.
The
use
of any loss carry forwards may be limited under the Internal Revenue Code due
to
the change in control of the Company in 2006.
Note
5. Operating Leases
The
Company leases an office building under a lease agreement that expires in July
2012. The rent expense for the year ended December 31, 2006 and 2005, totaled
to
$66,844 and $48,634, respectively.
The
Company’s future annual minimum lease payments are as follows for years ending
December 31:
2007
|
|
$
|
52,657
|
|
2008
|
|
54,236
|
|
2009
|
|
55,863
|
|
2010
|
|
57,539
|
|
2011
|
|
59,265
|
|
Thereafter
|
|
35,170
|
|
Total
|
|
$
|
314,730
|
|
Note
6. Stock Option Plan
In
2006,
the Company adopted the 2006 Stock Incentive Plan which reserves a total of
3,500,000 common shares to provide the Company with a means of compensating
selected key employees (including officers), directors and consultants. No
options were granted in 2006 under this Plan.
F-21
Note
7. Subsequent Events
On
February 7, 2007, the Company entered into an equipment lease agreement with
Mazuma Capital Corp. wherein the Company agreed to a 24-month sale and
lease-back arrangement for up to $800,000 of its manufacturing equipment. The
lease calls for a monthly payment based on a factor of .04125 times the average
outstanding loan balance during the month. Through March 29, 2007, the Company
has placed property valued at $737,968 under this lease arrangement with Mazuma
Capital Corp.
Between
January 1, 2007 and April 14, 2007, the Company issued 574,000 shares of our
common stock for services rendered by key consultants, officers, and
directors.
On
March
9, 2007, the Company closed on a private placement of 50,000 shares of common
stock for a total of $50,000.
On
April
4, 2007, the Company cancelled and returned to treasury 50,000 shares of our
common stock.
F-22
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
24. Indemnification
of Directors and Officers
Limitation
on Liability of Officers and Directors of the Company
Ethos
Environmental, Inc. is a Nevada corporation. In accordance with Section 78.037
of the Nevada Revised Statutes (“NRS”),
our
By-Laws may provide that no director or officer of the Company be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for (1) acts or omissions
which involve intentional misconduct, fraud or a knowing violation of law;
or
(2) the payment of distributions in violation of NRS Section 78.300, which
provides that (a) the directors of a corporation shall not make distributions
to
stockholders except as provided by this chapter; and (b) in case of any willful
or grossly negligent violation of the provisions of this section, the directors
under whose administration the violation occurred, excepting dissenters to
those
acts, are jointly and severally liable, at any time within three (3) years
after
each violation, to the corporation, and, in the event of its dissolution or
insolvency, to its creditors at the time of the violation, or any of them,
to
the lesser of the full amount of the distribution made or of any loss sustained
by the corporation by reason of the distribution to stockholders. In addition,
our certificate of incorporation may provide that if the Nevada Revised Statutes
are amended to authorize the further elimination or limitation of the liability
of directors and officers, then the liability of a director and/or officer
of
the corporation shall be eliminated or limited to the fullest extent permitted
by the Nevada Revised Statutes, as so amended.
Our
by-laws may further provide for indemnification by the Company of its officers
and certain non-officer employees under certain circumstances against expenses,
including attorneys fees, judgments, fines and amounts paid in settlement,
reasonably incurred in connection with the defense or settlement of any
threatened, pending or completed legal proceeding in which any such person
is
involved by reason of the fact that such person is or was an officer or employee
of the Company if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to criminal actions or proceedings, if such person
had no reasonable cause to believe his or her conduct was unlawful.
The
statutes, charter provisions,
bylaws,
contracts
or other
arrangements under which controlling persons, directors or officers of
the
registrant
are
insured or indemnified
in any
manner against any liability which they may incur in such capacity are as
follows:
Section
78.751 of the Nevada Business Corporation Act provides that each corporation
shall have the following powers:
1. |
A
corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative
or
investigative, except an action by or in the right of the corporation,
by
reason of the fact that he is or was a director, officer, employee
or
agent of the corporation, or is or was serving at the request of
the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys’ fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and
in a
manner which he reasonably believed to be in or not opposed to the
best
interest of the corporation, and, with respect to any criminal action
or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or on a plea of nolo contendere or its equivalent,
does not, of itself create a presumption that the person did not
act in
good faith and in a manner which he reasonably believed to be in
or not
opposed to the best interests of the corporation, and that, with
respect
to any criminal action or proceeding, he had reasonable cause to
believe
that his conduct was unlawful.
|
2. |
A
corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a
judgment
in its favor by reason of the fact that he is or was a director,
officer,
employee or agent of the corporation, or is or was serving at the
request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against
expenses, including amounts paid in settlement and attorneys’ fees
actually and reasonably incurred by him in connection with the defense
or
settlement of the action or suit if he acted in good faith and in
a manner
which he reasonably believed to be in or not opposed to the best
interests
of the corporation. Indemnification may not be made for any claim,
issue
or matter as to which such a person has been adjudged by a court
of
competent jurisdiction, after exhaustion of all appeals therefrom,
to be
liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which
the
action or suit was brought or other court of competent jurisdiction,
determines on application that in view of all the circumstances of
the
case, the person is fairly and reasonably entitled to indemnity for
such
expenses as the court deems proper.
|
3. |
To
the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any
action,
suit or proceeding referred to in subsections 1 and 2, or in defense
of
any claim, issue or matter therein, he must be indemnified by the
corporation against expenses, including attorneys’ fees, actually and
reasonably incurred by him in connection with the
defense.
|
4. |
Any
indemnification under subsections 1 and 2, unless ordered by a court
or
advanced pursuant to subsection 5, must be made by the corporation
only as
authorized in the specific case on a determination that indemnification
of
the director, officer, employee or agent is proper in the circumstances.
The determination must be made:
|
(b) |
By
the board of directors by majority vote of a quorum consisting of
directors who were not parties to the act, suit or proceeding;
|
(c) |
If
a majority vote of a quorum consisting of directors who were not
parties
to the act, suit or proceeding so orders, by independent legal counsel,
in
a written opinion; or
|
(d) |
If
a quorum consisting of directors who were not parties to the act,
suit or
proceeding cannot be obtained, by independent legal counsel in a
written
opinion.
|
5. |
The
certificate or articles
of incorporation, the bylaws or an agreement made by the corporation
may
provide that the expenses of officers and directors incurred in defending
a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition
of the action, suit or proceeding, upon receipt of an undertaking
by or on
behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled
to
be indemnified by the corporation. The provisions of this subsection
do
not affect any rights to advancement of expenses to which corporate
personnel other than directors or officers may be entitled under
any
contract
or
otherwise by law.
|
6. |
The
indemnification and advancement of expenses authorized in or ordered
by a
court pursuant to this section:
|
(a) |
Does
not exclude any other rights to which a person seeking indemnification
or
advancement of expenses may be entitled under the certificate or
articles of incorporation
or
any
bylaw, agreement,
vote of stockholders of disinterested directors or otherwise, for
either
an action in his official capacity or an action in another capacity
while
holding his office, except that indemnification, unless ordered by
a court
pursuant to subsection 2 or for the advancement of expenses made
pursuant
to subsection 5, may not be made to or on behalf of any director
or
officer if a final adjudication establishes that his acts or omissions
involved intentional misconduct, fraud or a knowing violation of
the law
and was material to the cause of action.
|
(b) |
Continues
for a person who has ceased to be a director, officer, employee or
agent
and inures to the benefit of the heirs, executors and administrators
of
such a person.
|
7. |
The
registrant’s Articles of Incorporation
limit liability of its Officers and Directors to the full extent
permitted
by the Nevada Business Corporation Act.
|
We
may
also enter into indemnification agreements with each of our directors and
certain of our executive officers. These agreements may provide that we
indemnify each of our directors and such officers to the fullest extent
permitted under law and our by-laws, and provide for the advancement of expense
to each director and each such officer. We may also obtain directors and
officers insurance against certain liabilities.
Anti-Takeover
Effects of
Certain Provisions of Nevada Law and Our Certificate of Incorporation and
By-Laws
Provisions
of our articles of incorporation and bylaws described below, to be determined,
may be deemed to have an anti-takeover effect and may discourage takeover
attempts not first approved by our board of directors, including takeovers
which
certain stockholders may deem to be in their particular best interests. These
provisions also could have the effect of discouraging open market purchases
of
our Common Stock because they may be considered disadvantageous by a stockholder
who desires subsequent to such purchases to participate in a business
combination transaction with us or elect a new director to our
board.
Director
Vacancies and Removal
Our
bylaws may provide that vacancies on our board of directors may be filled for
the unexpired portion of the term of the director whose place is vacant by
the
affirmative vote of a majority of the remaining directors. Our bylaws may
provide that directors may be removed from office with or without cause by
a
majority vote of shareholders entitled to vote at an election of
directors.
Actions
by Written Consent
Our
bylaws may provide that any action required or permitted to be taken by our
stockholders or Directors at an annual or special meeting of stockholders or
directors may be effected without a meeting if before or after the action taken,
a written consent setting forth the action taken is signed by a quorum of
stockholders or a quorum of directors, as the case may be. Such consent may
be
by proxy or attorney, but all such proxies and powers of attorney must be in
writing.
Special
Meetings of Stockholders
Our
articles of incorporation and bylaws may provide that a special meeting of
stockholders may be called at any time by our President, board of directors,
or
a majority thereof. Our bylaws may provide that only those matters included
in
the notice of the special meeting may be considered or acted upon at that
special meeting unless otherwise provided by law.
Advance
Notice of Director Nominations and Stockholder
Proposals
Our
bylaws may include advance notice and informational requirements and time
limitations on any director nomination or any new proposal which a stockholder
wishes to make at an annual meeting of stockholders.
Amendment
of the Certificate of Incorporation
As
required by Nevada law, certain amendments to our certificate of incorporation
must be approved by a majority of the outstanding shares entitled to vote with
respect to such amendment.
Amendment
of Bylaws
Our
articles of incorporation and bylaws may provide that our bylaws may be amended
or repealed by our board of directors or by the stockholders.
Item
25. Other
Expenses of Issuance and Distribution
The
following table sets forth the expenses expected to be incurred by us in
connection with the issuance and distribution of the Common Stock registered
hereby, all of which expenses, except for the SEC registration fee, are
estimates:
Description
|
|
Amount
|
|
Registration
Fee
|
|
$
|
2,674.35
|
|
*Accounting
fees and expenses
|
|
$
|
8,000.00
|
|
*Legal
fees and expenses
|
|
$
|
20,000.00
|
|
*Transfer
Agent fees and expenses
|
|
$
|
2,000.00
|
|
*Printing
|
|
$
|
2,000.00
|
|
*Miscellaneous
fees and expenses
|
|
$
|
10,000.00
|
|
|
|
|
|
|
Total
|
|
$
|
44,674.35
|
|
*Estimated
|
|
|
|
|
The
selling stockholders will not bear any expenses associated with the filing
of
the Registration Statement.
Item
26. Recent
Sales of Unregistered Securities
In
connection with the merger that closed on November 1, 2006, we issued a total
of
17,718,187 shares of our common stock.
On
March
9, 2007, the Company closed on a private placement of 50,000 shares of common
stock for a total of $50,000.
On
May
23, 2007, we finalized and issued a warrant ("Warrant") to purchase 1,900,000
shares of common stock at $2.50 per share to National Advisors, Inc. ("NAI").
This Warrant expires March 31, 2010. No underwriter participated in, nor did
we
pay any commissions or fees to any underwriter in this transaction. This
transaction did not involve a public offering. NAI had knowledge and experience
in financial and business matters that allowed it to evaluate the merits and
risk associated with the Warrant. NAI was knowledgeable about our operations
and
financial condition. The Warrant was issued under an exemption from the
registration requirements of the Securities Act of 1933 (the "Act"), as amended,
pursuant to Section 4(2) of the Act and Rule 506 of Regulation D promulgated
thereunder. NAI is an "accredited investor" under the Act.
Item
27. Exhibits
The
following exhibits are included as part of this Form SB-2, as
amended.
REGULATION
|
|
S-B
NUMBER
|
EXHIBIT
|
|
|
|
|
3.1
|
Articles
of Incorporation (incorporated by reference to Exhibit 3.1 to the
Company’s Definitive Schedule 14A Information Statement filed on October
4, 2007.)
|
3.2
|
Bylaws
(incorporated by reference to Exhibit 3.2 to the Company’s Definitive
Schedule 14A Information Statement filed on October 4,
2007.)
|
4.1
|
Specimen
Stock Certificate*
|
5.1
|
Consent
and Opinion SteadyLaw Group, LLP*
|
10.1
|
Agreement
and Plan of Merger (incorporated by reference to Exhibit 10.1 to
the
Company’s Definitive Schedule 14A Information Statement filed on October
4, 2007.)
|
10.2
|
Employment
Agreement - Thomas W. Maher (incorporated by reference to Exhibit
10.2 to
the Company’s Form 8-K filed on December 8, 2006.)
|
10.3
|
Private
Placement Subscription Agreement (incorporated by reference to Exhibit
10.3 to the Company’s Form 8-K filed on March 13,
2007.)
|
10.4
|
Common
Stock Purchase Warrant (incorporated by reference to Exhibit 10.4
to the
Company’s Form 8-K filed on May 24, 2007.)
|
10.5
|
Registration
Rights Agreement*
|
14.1
|
Code
of Ethics*
|
23.1
|
Consent
of Peterson Sullivan, PLLC*
|
*Filed
herewith.
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned, in the City of San Diego,
California, on June 11, 2007.
|
ETHOS
ENVIRONMENTAL, INC.
|
|
|
|
|
|
By:
/s/ ENRIQUE de VILMORIN
|
|
Enrique
de Vilmorin, President, CEO &
|
|
Director
|
In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and
on the dates stated.
SIGNATURE
|
|
TITLE
|
DATE
|
|
|
|
|
By:
/s/ ENRIQUE de VILMORIN
|
|
President,
CEO, & Director
|
June
11, 2007
|
Enrique
de Vilmorin
|
|
|
|
|
|
|
|
SIGNATURE
|
|
TITLE
|
DATE
|
|
|
|
|
By:
/s/ THOMAS MAHER
|
|
CFO
|
June
11, 2007
|
Thomas
Maher
|
|
|
|
SIGNATURE
|
|
TITLE
|
DATE
|
|
|
|
|
By:
/s/ JOSE M. ESCOBEDO
|
|
Secretary
& Director
|
June
11, 2007
|
Jose
M. Escobedo
|
|
|
|
|
|
|
|
SIGNATURE
|
|
TITLE
|
DATE
|
|
|
|
|
By:
/s/ LUIS WILLARS
|
|
Director
|
June
11, 2007
|
Luis
Willars
|
|
|
|
Exhibit
|
|
|
|
No.
|
|
Description
|
Reference
|
3.1
|
Articles
of Incorporation (incorporated by reference to Exhibit 3.1 to the
Company’s Definitive Schedule 14A Information Statement filed on October
4, 2007.)
|
3.2
|
Bylaws
(incorporated by reference to Exhibit 3.2 to the Company’s Definitive
Schedule 14A Information Statement filed on October 4,
2007.)
|
4.1
|
Specimen
Stock Certificate*
|
5.1
|
Consent
and Opinion SteadyLaw Group, LLP*
|
10.1
|
Agreement
and Plan of Merger (incorporated by reference to Exhibit 10.1 to
the
Company’s Definitive Schedule 14A Information Statement filed on October
4, 2007.)
|
10.2
|
Employment
Agreement - Thomas W. Maher (incorporated by reference to Exhibit
10.2 to
the Company’s Form 8-K filed on December 8, 2006.)
|
10.3
|
Private
Placement Subscription Agreement (incorporated by reference to Exhibit
10.3 to the Company’s Form 8-K filed on March 13,
2007.)
|
10.4
|
Common
Stock Purchase Warrant (incorporated by reference to Exhibit 10.4
to the
Company’s Form 8-K filed on May 24, 2007.)
|
10.5
|
Registration
Rights Agreement*
|
14.1
|
Code
of Ethics*
|
23.1
|
Consent
of Peterson Sullivan, PLLC*
|